131690611

multiple Design Linked Incentive (DLI)-backed semiconductor startups told ET.Many firms may struggle to remain Indian-owned unless the government incentivises the market to use chips designed in the country, they warned.The Rs 1,000-crore DLI scheme has helped build domestic chip-design capabilities, backing 24 domestic startups and MSMEs so far, but there is no incentive for electronics makers to adopt Indian chips for products aimed at the domestic market, they said.The Ministry of Electronics and Information Technology (MeitY) did not respond to ET's request for a comment.Founder of a DLI-backed semiconductor startup said several overseas investors, particularly from Singapore and the US, are already interested in backing Indian semiconductor startups, but some companies have avoided taking such investments to retain domestic status.As per the existing DLI norms, after receiving their last milestone money from the government, the startups must stay Indian for three years.This requirement may be insufficient to preserve Indian ownership of strategically important intellectual property as semiconductor startups face severe capital constraints, making overseas funding increasingly difficult to avoid, founders said.“There is no choice but for me to seek funds outside of India,” a second founder said, citing the limited availability of domestic investors willing to fund high-risk semiconductor ventures at scale.The “real incentive” for startups to continue operating from India would be access to government procurement opportunities and stronger preference for Indian chips in domestic systems, he said.He pointed to surveillance systems and CCTV deployments as a “low-hanging fruit” where the government could encourage adoption of Indian chips.While existing certification norms restrict the use of Chinese-origin components in certain deployments, they do not mandate or incentivise the use of Indian semiconductor products.Product makers can currently switch to chips from Taiwan, Singapore or other markets and still qualify under procurement norms, leaving Indian chipmakers without any structural advantage.Even if Indian chips meet quality requirements, there is “no compelling reason” for device makers to adopt them, the person quoted first said.He argued that India’s public procurement policies currently favour broader “Indian content” in finished electronics products, but do not specifically reward the use of domestically designed semiconductor components. Since chips account for only a small portion of the total project cost in large deployments, companies can satisfy localisation requirements through other hardware elements without sourcing Indian chips, he said.The second founder noted that companies ultimately remain accountable to investors and employees, which means decisions on ownership and capital raising are likely to be driven by funding availability rather than nationalism alone.He said companies could eventually dilute Indian ownership significantly if overseas capital offered better terms or enabled faster scaling. “Capital makes things happen,” he said, adding that firms may prioritise competitiveness and survival over retaining majority domestic ownership.Founders said Indian startups face structural disadvantages against established global competitors whose non-recurring engineering (NRE) costs have already been amortised across years of commercial shipments. In contrast, Indian startups continue to bear substantial upfront costs linked to tape-outs, IP licensing and production readiness.The full-mask NRE and associated IP costs for a chip can range from ₹1 crore to ₹70 crore, even after DLI support. As a result, foreign competitors are often able to sell comparable products at significantly lower prices, the first founder said.The government should consider procurement preferences or pricing advantages for Indian semiconductor startups, while still allowing competition on quality, he said. “Every country does that.”Existing initiatives such as Standardisation Testing and Quality Certification help restrict certain imports but do not directly benefit Indian chip companies, the founder said.Separately, he raised concerns over taxation on engineering test chips imported into India after fabrication runs abroad. According to him, startups currently pay 18% GST even on chips imported purely for testing and R&D purposes, despite such chips not being intended for commercial sale.The founder also said there is no dedicated procurement policy giving Indian chip startups preference over foreign semiconductor suppliers in government projects, despite broader localisation initiatives for electronics products.