The government has unveiled its ₹1.27 lakh crore Semicon 2.0 initiative to accelerate advanced semiconductor design. By using a co-investment model with private venture capitalists, the program aims to overcome the funding limitations of the previous Design-Linked Incentive scheme. This push focuses on building domestic intellectual property for AI and high-end technology applications over the next six years.
The Indian government has introduced the Semicon 2.0 initiative, a substantial policy shift aimed at transforming the country into a global hub for semiconductor intellectual property and chip design. With an allocated budget of ₹1.27 lakh crore, the program is scheduled to run for six years starting from the 2026-27 financial year. This move is designed to move beyond the scope of the existing Design-Linked Incentive (DLI) scheme, which officials have identified as insufficient for high-end chip development.
Scaling Up Funding for Complex Design
Under the current DLI framework, government support for chip design firms is capped at approximately ₹15 crore per project. However, industry experts and government officials note that developing cutting-edge chips for artificial intelligence and other advanced applications can cost upwards of ₹1,000 crore. To address this financial gap, Semicon 2.0 will shift toward a co-investment model. In this arrangement, the government will provide capital alongside private venture capitalists and institutional investors. This structure allows professional investors to handle the selection and vetting of startups, while the government provides the necessary financial scale to support high-cost projects.
Shifting Focus to Intellectual Property
The strategic priority under Semicon 2.0 is the creation of indigenous semiconductor intellectual property. While India already hosts over 100 startups involved in various stages of chip development, many currently operate within smaller, lower-complexity niches. By providing incentives through a mix of grants, equity, and royalty-linked payments without a strict per-company investment cap, the government aims to encourage firms to take on more complex design projects.
This initiative marks a clear separation between design and manufacturing objectives. While local chip manufacturing remains a long-term goal, the government is prioritizing the design ecosystem first to establish India’s presence in the global semiconductor value chain. Investors should note that the success of this program will depend on the ability of domestic firms to successfully execute complex design projects and the willingness of the private venture capital sector to participate in the co-investment framework. Key monitorables for the next few years include the actual deployment of these funds, the number of large-scale design projects sanctioned, and the progress in building sustainable semiconductor intellectual property that can be commercialized in global markets.