Media365
India will take equity stakes in semiconductor startups under the newly approved Semicon 2.0 programme, marking a major shift in the government’s strategy to build a domestic chip ecosystem. The Centre will co-invest alongside private investors but plans to exit once companies mature, allowing founders to retain long-term control of their businesses.
The new funding model, announced a day after the Union Cabinet approved Semicon 2.0 with an outlay of Rs 1.27 lakh crore, is aimed at helping Indian chip startups overcome one of their biggest hurdles — raising growth capital.
Speaking at a media interaction on Wednesday, India Semiconductor Mission (ISM) CEO Amitesh Kumar Sinha said the government would match venture capital (VC) investments at every funding stage, from seed funding to Series A, B and C rounds, without seeking operational control.
“Government will also match the amount brought in by investors,” Sinha said, adding that the Centre would invest on the same commercial terms and hold the same class of equity as private investors.
Unlike a traditional shareholder, however, the government will remain a financial investor.
“We don’t want to interfere in their day-to-day working,” Sinha said when asked whether the Centre would seek board representation. Detailed operational guidelines for the programme will be issued separately.
The equity model has been designed to ensure founders retain control of their companies while gaining access to significantly larger pools of capital. According to Sinha, the government’s stake will generally remain below 50 per cent.
Once startups begin generating revenue, they will have the option to buy back the government’s stake.
“The moment the company starts earning revenue, they will be comfortable and happy to buy the government’s share,” Sinha said.
Even if a startup is acquired before buying back the government’s stake, there will be no restrictions on such transactions. The government will simply monetise its equity based on the prevailing valuation.
“We are not binding any company,” Sinha said.
The ISM chief said the broader objective is to recycle public capital into future semiconductor ventures, enabling successful entrepreneurs to launch new chip companies after exiting their first businesses.
The equity funding mechanism is one of the biggest additions under Semicon 2.0, which expands India’s semiconductor strategy beyond fabrication and assembly. The programme will also support chip design, advanced packaging, semiconductor materials, chemicals, manufacturing equipment, research and talent development, while continuing incentives for fabrication projects.
For larger and established companies, however, the government will adopt a different financing model.
Instead of taking equity, support will be provided through a royalty-based mechanism under which companies will repay government assistance once revenues begin to flow.
“When the revenue starts flowing, we’ll take back 1.5 times the amount the government has given,” Sinha said, adding that the royalty model is meant for larger companies while equity participation is intended for startups.
Sinha also said India is emerging as a cost-competitive destination for semiconductor manufacturing. He told CNBC-TV18 that companies could realise cost savings of more than 10 per cent compared with their existing global manufacturing locations through a combination of central and state government incentives, lower labour costs, competitive electricity tariffs and the gradual localisation of semiconductor materials, gases and equipment.
According to him, government incentives could offset 50-60 per cent of the capital expenditure required to set up semiconductor facilities, helping new plants in India compete with established manufacturing hubs abroad. Lower operating costs, including manpower and power, could further strengthen India’s competitiveness as the domestic semiconductor ecosystem expands.
The Centre expects Semicon 2.0 to attract around Rs 4 lakh crore in investments over the next decade, generate nearly Rs 2 lakh crore worth of semiconductor production, and create a comprehensive domestic ecosystem spanning chip design, manufacturing, materials and equipment.
The government is expected to notify the detailed guidelines for the programme in the coming weeks, paving the way for the next phase of India’s semiconductor ambitions.
