Allowing multinational corporations to participate in the proposed second phase of the design-linked incentive (DLI) scheme through joint ventures with Indian startups could dilute the intended benefits for domestic semiconductor firms, beneficiaries of the first programme told ET.
The government has announced that it was working on the details of DLI 2.0, which would focus on six key categories of semiconductor devices, but has not yet disclosed the scheme framework or rules. Government officials indicated that it could allow up to a 49% foreign ownership in participating entities. The first phase of the scheme exclusively targeted local firms.
The Ministry of Electronics and Information Technology did not respond to ET's request for comment.
“Even with a 49:51 structure, there is a concern that larger foreign entities may eventually dominate the ecosystem because of their financial muscle and market influence,” said Vijay Muktamath, chief executive of Sensesemi Technologies, a Bengaluru-based fabless semiconductor startup and beneficiary of DLI 1.0 scheme.
Muktamath said the government should continue prioritising Indian startups under DLI 2.0. “India is still in the process of building its semiconductor design ecosystem. Bringing in foreign entities at this stage could reduce the space available for Indian entrepreneurs and startups,” he said.
MNCs could use the partnerships to push globally developed chipsets and intellectual property under India’s incentive framework, he warned. “If future procurement policies mandate the use of Indian-made chips, larger foreign-backed entities may end up cornering a larger share of the opportunity compared to smaller domestic firms.”
Controlled foreign participation
Government officials familiar with discussions around the DLI 2.0 framework said the revised structure is likely to retain Indian control requirements while allowing broader participation from global investors and technology partners.
It may also expand eligibility beyond startups and MSMEs to larger Indian firms, they said. Government support may match external venture or strategic funding under similar terms and conditions.
Permitting controlled foreign participation is necessary given the capital-intensive nature of semiconductor design and deeptech development, officials argued. “We need global funding. We need global equity. Our interest is IP ownership, so that it is sovereign,” an official said, adding that India should ensure domestic control over intellectual property and prevent transfer of strategic IP abroad.
Officials, meanwhile, expressed reservations over proposals being discussed to treat Overseas Citizen of India (OCI) card holders residing in India for more than six months as “Indian” for ownership calculations, arguing that OCI holders remain citizens of another country despite their residency in India.
On concerns raised by startups that minority foreign investors could exercise disproportionate influence over Indian semiconductor firms, the officials acknowledged that “soft control” by large multinational companies was possible, but maintained that majority ownership and government participation would help protect sovereignty interests.
Discussions around the revised scheme have moved beyond the pre-cabinet stage, they said, and indicated that cabinet approval may have also been already secured, though a formal announcement is pending.
Need sufficient safeguards
The founder of a second DLI 1.0 beneficiary said a 51:49 Indian-to-foreign ownership structure may not sufficiently safeguard long-term domestic control. “If the intent is to build semiconductor self-reliance, then the intellectual property and ownership structure should remain firmly rooted in India,” he said.
“Those with greater financial resources could simply partner with global players and dominate the ecosystem, which raises questions about whether the scheme would still be fostering genuine domestic innovation,” the person said.
The executive also questioned how the government would ensure that technologies developed under such partnerships remain Indian-controlled over the long term.
At the same time, the executive differentiated between concerns around ownership structure and demands for larger incentives under DLI 2.0. While industry participants have sought higher reimbursements and production-linked support, the executive said the more fundamental issue was ensuring that India retains control over critical IP and technology development.
A third executive from a separate DLI 1.0 beneficiary said while the proposed framework may make it easier for startups to raise capital and improve acquisition prospects, foreign investors could still exercise significant influence even without majority ownership through layered shareholding structures or aligned entities.
If the aim is to help India-focused companies scale domestically, the DLI support should ideally prioritise companies with strong Indian control structures, he said.
At the same time, he acknowledged that startups themselves could benefit commercially from easier access to foreign funding, mergers and acquisitions opportunities, and higher investor interest under such a regime.
Shashwath TR, chief executive of Chennai-based Mindgrove Technologies that has been selected under DLI 1.0, told ET: "Linking support to market validation, raising the bar on commercialisation and pushing for domestically owned IP, these are the right instincts. The real measure of success is not tape-outs. It is chips finding their way into products and supply chains."
DLI 1.0 proved the concept. Many of the companies that were supported are at the cusp of reaching the market, he said.
"We believe the government doubling down with 2.0 will open the ecosystem to more ambitious and vital projects, and that is an exciting prospect for everyone building in this space," he added.
As many as 24 DLI 1.0-supported chip design projects have targeted strategic sectors including video surveillance, drone detection, energy metering, microprocessors, satellite communications, and Internet-of-Things (IoT) System-on-Chips (SoC).
DLI-supported projects have had 16 tape-outs, six application specific integrated circuit (ASIC) chips and 10 patents.
Currently, under DLI 1.0, product design-linked incentive includes reimbursement of up to 50% of eligible expenditure, with a cap of Rs 15 crore per application. The support is available to entities involved in semiconductor design for ICs, chipsets, SoCs systems, and semiconductor IP cores-linked designs.
Under deployment linked incentive, incentives of 6% to 4% of net sales turnover are provided for five years. The incentive is capped at Rs 30 crore per application.
The minimum cumulative net sales required from first year to fifth year is Rs 1 crore for startups/MSMEs and Rs 5 crore for other domestic companies. The design must be successfully deployed in electronic products.
