Overhauling of the Semiconductor Scheme

January 24, 2024

India’s $10 billion Semicon India program, including the Design-Linked Incentive (DLI) scheme for chip design startups, has seen lackluster outcomes versus targets. With the DLI’s mid-term review upcoming, policymakers have an opportunity to assess shortfalls and refocus efforts.

Strategic priorities

India’s semiconductor strategy has three main aims – curbing electronics imports from China, integrating into the global chip value chain, and leveraging existing chip design talent for self-reliance. Stimulating design ecosystem links to the fabrication and assembly industry goals too.

Supporting just 7 startups

Against a 5-year target of backing 100 design startups, the DLI scheme has approved only 7 since 2021. While providing access to design software and financial incentives, strict norms have deterred applicants. Boosting design capabilities is vital for cementing India’s semiconductor aspirations amid resource constraints.

Barriers for startups

The DLI scheme prohibits raising over 50% funds through foreign direct investment to retain domestic status for 3 years post-incentives. But capital costs in chip design are high, and Indian hardware investors risk-averse. Capping foreign equity starve startups of funds to offset modest incentives worth ₹15-30 crore.

Broadening objectives

Rather than limiting DLI to startups ready for mass production, the scheme should look to foster a wider array of chip design firms to nurture India’s semiconductor talent base. Though relaxed norms, larger incentives and removing ownership curbs. Financial failures should be tolerated to establish India’s footing.

Implementation challenges

The Centre for Development of Advanced Computing currently oversees DLI as both market player and regulator, raising conflict of interest issues. Karnataka’s Semiconductor Fabless Accelerator Lab offers a blueprint for a dedicated DLI agency providing startups access to mentors, industry and investors.

Wider recommendations

A targeted DLI policy steered by a capable institution can seed India’s chip design ecosystem. Rather than limiting startups, it should spur innovation around chip IP. Still, fabrication incentives need timely appraisal too, given utilization issues. Holistic handholding with coordinated policy and execution is key.

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