Jyly 17, 2026: The Indian government is overhauling its semiconductor startup support strategy under the newly approved Semicon 2.0 programme, shifting from one-time grants to a funding model that combines milestone-based investments with equity participation alongside venture capital (VC) firms.
The Union Cabinet on Wednesday approved Semicon 2.0 with an outlay of ₹1.27 lakh crore, broadening India’s semiconductor push beyond chip fabrication and assembly to strengthen the country’s startup ecosystem.
Speaking about the new framework, India Semiconductor Mission (ISM) Chief Executive Amitesh Kumar Sinha said the revised approach is designed to address the long funding cycle unique to semiconductor companies.
“Semiconductor startups need patient capital. Unlike software companies, they require significant investments long before products reach the market,” Sinha said, adding that the government’s objective is to build the ecosystem rather than generate financial returns.
The redesign comes after the government reviewed outcomes of the Design Linked Incentive (DLI) scheme. While several startups successfully developed chip designs and proof-of-concepts, many struggled to secure the hundreds of crores required for product qualification, commercialisation and large-scale manufacturing.
According to Sinha, the biggest financing gap emerges after the design phase, when startups require substantially larger investments but often find it difficult to raise capital through conventional startup funding channels.
Semicon 2.0: India Shifts from Grants to Equity Support for Semiconductor Startups
To bridge this gap, the government is working on a phased funding structure that will provide startups with initial seed funding, followed by larger investments tied to predefined technical and commercial milestones. An internal committee is currently finalising the framework.
As part of the proposed model, the Centre will also take minority equity stakes in semiconductor startups. Sinha said the government’s shareholding will generally remain below 50%, with no board representation or involvement in day-to-day management, allowing founders to retain operational control.
The framework will also provide founders with the option to buy back the government’s stake as their companies mature. Startups will remain free to raise additional capital from investors or pursue mergers and acquisitions. The government, in turn, plans to exit at prevailing market valuations and recycle the proceeds into future semiconductor ventures.
The move reflects a broader global trend of governments using equity investments to support strategically important technology sectors instead of relying solely on grants and subsidies.
The United States has also adopted a similar approach. Under the Trump administration, part of Intel’s support under the CHIPS Act was converted into an equity investment, with the government taking a passive 9.9% stake while leaving management control with the company.
With Semicon 2.0, India is looking to create a more sustainable financing model for deep-tech chip startups, addressing one of the biggest barriers to scaling indigenous semiconductor innovation.
