The DLI 2.0 Scheme is expected to play an important role in the next phase of India’s semiconductor strategy, as policy attention expands beyond fabrication, assembly and packaging towards semiconductor design, domestic intellectual property creation and commercialisation. The proposed framework is intended to strengthen the financing and development ecosystem required to help Indian semiconductor companies move from chip design and prototyping to validation, market deployment and commercial scale.
The Government approved Semicon India Programme 2.0 in July 2026 with an outlay of ₹1,27,500 crore. The programme is structured around six strategic pillars covering chip design, semiconductor equipment and materials, fabrication facilities, advanced packaging, research and development, and talent development.
Within this broader policy framework, the proposed second edition of the Design Linked Incentive Scheme, or DLI 2.0 Scheme, could materially change how semiconductor design businesses are supported. Recent reports, based on the framework prepared by the Ministry of Electronics and Information Technology, indicate that the new scheme could introduce seed funding, government equity co-investment and royalty-based financing, alongside continued access to semiconductor design infrastructure.
The significance lies not merely in the amount of financial assistance proposed. DLI 2.0 Scheme appears to be moving towards a model in which Government support is linked more closely with project milestones, private capital, commercial viability and domestic ownership of semiconductor intellectual property.
Important: The financing provisions discussed below are based on the proposed DLI 2.0 Scheme reported following Government statements. Detailed administrative and operational guidelines will ultimately determine eligibility, qualifying expenditure, financing conditions and the application process. Government officials indicated at the end of July 2026 that these detailed guidelines were expected to follow shortly.
Why Chip Design Has Become a Strategic Priority
Semiconductor manufacturing is only one part of the semiconductor value chain. Much of the economic and strategic value of a semiconductor product originates much earlier, through architecture, chip design and intellectual property. The Government’s own assessment notes that semiconductor chip design can contribute up to 50% of value addition and that the fabless segment accounts for approximately 30% to 35% of global semiconductor sales.
India already has a substantial semiconductor design talent base. Under the existing DLI framework, 24 chip-design projects had been approved by July 2026, while 103 applications for Electronic Design Automation tools had been approved and 15 companies had received venture capital support. Semicon 2.0 therefore appears to be attempting to convert India’s established engineering capability into a larger base of Indian semiconductor products, intellectual property and commercially scalable fabless companies. That transition requires more than engineering talent. Semiconductor businesses require capital well before meaningful revenues are generated.
What Could Change Under DLI 2.0 Scheme?
The existing Design Linked Incentive Scheme primarily provides two forms of financial support.
Under the Product Design Linked Incentive, eligible expenditure can presently receive reimbursement of up to 50%, subject to a ceiling of ₹15 crore per application. The Deployment Linked Incentive provides incentives ranging from 6% to 4% of net sales turnover over five years, subject to specified conditions and a ceiling of ₹30 crore per application.
DLI 2.0 Scheme could substantially change this structure.
Instead of relying principally on reimbursement after expenditure has been incurred, the emerging framework proposes different financing mechanisms depending upon the nature and size of the applicant.
Indicative DLI 2.0 Scheme Financing Framework
| Applicant category | Proposed support | Key reported terms |
|---|---|---|
| Startups and MSMEs | Seed funding | Up to ₹15 crore, subject to 50% of project cost |
| Startups and MSMEs | Government equity co-investment | Alongside VC/PE investment; no stated ceiling reported |
| Other eligible companies | Royalty-based financing | 5% of net revenue until Government recovers 1.5 times its financial support |
| Other eligible companies | Equity co-investment | Government co-investment alongside VC/PE investors; no stated ceiling reported |
| Supported companies | Equity buyback | Proposed option for the company to buy back Government equity |
The proposed ₹15 crore seed support for qualifying startups and MSMEs is expected to be provided as a milestone-linked advance, rather than simply as reimbursement after expenditure.
For larger companies outside the startup and MSME categories, the proposed framework introduces a potentially important alternative: royalty financing. Under the reported structure, the beneficiary would pay 5% of net revenue until the Government has recovered 1.5 times the amount of financial assistance provided.
The precise commercial, valuation, repayment and exit mechanics will, however, need to be examined once the detailed guidelines are issued.
Why the Proposed Financing Structure Matters
Developing a semiconductor product differs materially from establishing many conventional businesses.
A semiconductor design company may incur substantial expenditure before commercial revenues begin. Depending upon the product and technology, expenditure may arise across:
- Semiconductor architecture and engineering;
- Electronic Design Automation tools;
- Third-party intellectual property licensing;
- Verification and validation;
- Prototype development;
- Tape-out;
- Mask development;
- Wafer fabrication;
- Packaging and testing;
- Post-silicon validation;
- Product qualification; and
- Customer integration and commercialization.
The challenge is therefore not simply whether a product is technically feasible. The business must be capable of financing the period between initial design and meaningful commercial deployment.
This appears to be one of the issues DLI 2.0 Scheme is attempting to address.
A milestone-linked advance could partly reduce the working-capital burden associated with the existing reimbursement model. Equity co-investment could help connect public support with professional private-capital evaluation. Royalty financing could provide another funding route for businesses where conventional equity financing may not be the preferred structure.
From a project-planning perspective, however, each mechanism creates different implications for ownership, cash flow, future fundraising and the economic value retained by the company. An applicant should therefore evaluate the financing structure rather than looking only at the headline incentive amount.
DLI 2.0 Scheme Could Extend Beyond Financial Assistance
One of the important aspects of India’s DLI framework has been access to semiconductor design infrastructure.
Under the existing scheme, C-DAC’s ChipIN Centre provides access to the National EDA Tool Grid, IP Core repositories and Multi-Project Wafer prototyping support.
The proposed DLI 2.0 framework could expand this support to include:
Advanced EDA tools: Access to software required for complex semiconductor design.
Third-party IP cores: Potential access to intellectual property blocks that can accelerate System-on-Chip development.
Multi-Project Wafer fabrication: Sharing fabrication runs among multiple designs, reducing prototyping costs.
Post-silicon validation facilities: Infrastructure required to test whether fabricated silicon performs according to design requirements.
These facilities matter because funding a design team without providing an economically practical route towards fabrication, testing and validation does not complete the semiconductor development cycle.
Strategic Chip Categories Could Influence Future Opportunities
A further policy development could materially influence which semiconductor projects attract enhanced support.
The Government is examining the semiconductor requirements of India’s strategic sectors and identifying categories of chips that are considered important for critical applications. The committee undertaking this exercise has been consulting industry participants and different ministries regarding requirements for secure semiconductor chips used in critical equipment and components.
Earlier Government statements identified six broad semiconductor categories of particular relevance: compute, radio frequency, networking, power management, sensors and memory. The Government’s assessment was that combinations of these categories can address a substantial proportion of semiconductor requirements across areas such as automobiles, railways, space, defence and other electronic systems.
Designing products aligned with strategically important semiconductor requirements could consequently become relevant when evaluating future project eligibility and the level of policy support available.
The commercial implication is important. A semiconductor project should not be structured merely around the availability of an incentive. It needs to establish a credible relationship between:
Application requirement → chip architecture → indigenous IP → fabrication and validation → customer adoption → commercial volume
What Should a Company Evaluate Before Considering DLI 2.0 Scheme?
For businesses evaluating semiconductor design opportunities, the first exercise should not necessarily be preparation of a scheme application. The more important first step is determining whether the proposed semiconductor product represents a technically executable and commercially sustainable business proposition.
1. Define the Semiconductor Product Clearly
The project should establish exactly what is being developed: an IC, chipset, System-on-Chip, IP core, semiconductor-linked system or another qualifying product. Its target application, specifications, intended customers and competitive positioning should be defined before the funding requirement is determined.
2. Establish the Technology Roadmap
The proposed process node, architecture, foundry route, fabrication requirements, packaging approach, testing methodology and technology partnerships will materially influence both project cost and execution risk. A product intended for relatively mature industrial applications will have a very different development economics from one requiring advanced process nodes.
3. Determine the Full Development Cost
The project cost should cover the entire path from engineering through commercially deployable silicon. This may include design manpower, software tools, IP licensing, prototyping, fabrication, masks, packaging, testing, validation and qualification. This distinction is particularly important because semiconductor development costs do not end when the design itself is completed.
4. Assess the Funding Gap
The financial assessment should clearly establish the total project funding requirement and then determine how much of this can be met through DLI or other Government support, promoter or internal funding, and external capital from venture capital, private equity or strategic investors. The balance would represent the residual funding requirement that must be arranged separately. The funding plan should also provide adequate headroom for potential project delays, cost overruns and the additional capital that may be required during validation, qualification and commercialisation.
5. Establish Ownership of Intellectual Property
Semicon 2.0 places considerable emphasis on indigenous semiconductor intellectual property. The project should therefore establish ownership and licensing rights relating to architecture, third-party IP, design outputs and resulting semiconductor products. Government officials have also indicated that keeping supported semiconductor IP within India is an important consideration in the emerging framework.
6. Define Measurable Project Milestones
Since support for smaller businesses may become milestone-linked, the development programme should identify measurable technical and commercial milestones. These could include:
architecture completion → design and verification → tape-out → fabrication → packaged silicon → validation → qualification → customer approval → commercial deployment.
7. Validate the Market Before Finalizing the Investment
Technical capability alone does not establish commercial feasibility. The project should identify the addressable applications, potential customers, competing products, expected volumes, pricing, qualification requirements and probable adoption timeline. Where Government funding is linked with private capital, external market validation could become even more important because private investors will independently assess whether the product has a credible route to commercialization.
The ₹15 Crore Incentive Should Not Be Viewed as the Project Budget
The proposed seed-funding provision is likely to attract significant attention because eligible startups and MSMEs could receive up to ₹15 crore, capped at 50% of project cost. However, the ₹15 crore figure should not become the starting point for designing a semiconductor project. The appropriate sequence is the reverse:
Define the product → establish technical requirements → estimate development expenditure → assess market opportunity → determine funding requirement → identify eligible scheme support
This distinction is important because certain semiconductor development costs can be substantial. Industry participants have specifically highlighted photomasks as one area where significant expenditure may arise. The newspaper report accompanying the proposed DLI 2.0 Scheme cited industry estimates of approximately US$3.5 million for a 12-nanometre mask set and approximately US$1.8 million for a 22-nanometre mask set, although actual costs depend upon process, foundry and design complexity. These figures are industry estimates rather than Government-prescribed costs.
The feasibility of a semiconductor project therefore depends upon the total financing architecture, not simply the maximum Government assistance available.
Market Access Could Become Part of the Policy Architecture
Financing a semiconductor product does not by itself create a sustainable semiconductor business. The product must ultimately secure customers and progress into meaningful production volumes. The proposed DLI 2.0 Scheme reportedly considers using the Public Procurement (Preference to Make in India) framework, wherever applicable, to improve market access for domestically designed semiconductor products.
If implemented effectively, this could be particularly relevant for semiconductor products serving applications where Government and public-sector procurement represents an important part of domestic demand. For participating companies, however, this would make product qualification, reliability, pricing, security requirements and manufacturing scalability increasingly important. Receiving design funding may help a business reach silicon; sustained market acceptance will determine whether it becomes commercially viable.
| Before proceeding with an investment or scheme application, businesses should establish the proposed chip’s market requirement, technology roadmap, development cost, intellectual-property structure, funding requirement and route to commercialization. Hmsa Consultancy Services assists businesses evaluating semiconductor opportunities through feasibility studies, Detailed Project Reports, market assessment, business planning, financial modelling and strategic evaluation aligned with actual investment decisions. If you are considering a semiconductor design project or evaluating potential support under DLI 2.0 Scheme, you can share your requirements here. |
What Should Businesses Watch for in the Final DLI 2.0 Guidelines?
Businesses considering DLI 2.0 Scheme should closely review the final scheme guidelines once issued, as several provisions could materially affect project economics and eligibility. Particular attention should be given to the definition of eligible applicants and project expenditure, including the treatment of costs relating to design manpower, EDA tools, IP licensing, masks, fabrication, packaging, testing and post-silicon validation.
The guidelines will also need to clarify how milestone-linked disbursements will operate, the terms of Government equity co-investment, valuation and buyback mechanisms, and the methodology for royalty-based financing, including the definition of net revenue and recovery thresholds. Companies should also examine any conditions relating to ownership and retention of semiconductor intellectual property in India, prioritisation of strategic chip categories, and the extent to which domestically designed products may receive preference under public procurement frameworks.
These provisions will ultimately determine not only whether a project qualifies for support, but also how attractive the scheme is within the overall commercial and financing structure of the proposed semiconductor venture.
How Hmsa Consultancy Services Can Support Semiconductor Projects
Hmsa Consultancy Services provides management consulting support for businesses evaluating investment opportunities in the semiconductor ecosystem.
Our role can include the following areas.
- Preliminary Opportunity and Scheme Assessment: Review of the proposed semiconductor business concept, project objectives, policy relevance, available incentives and principal requirements before significant expenditure is incurred.
- Feasibility Study and Detailed Project Report: Development of a structured project assessment covering the business concept, technology framework, market opportunity, implementation programme, development expenditure, operating assumptions, funding structure, financial projections and project viability.
- Market and Application Assessment: Evaluation of target applications, customer industries, competing products, demand drivers, commercial positioning and potential routes to market.
- Financial Modelling and Funding Assessment: Assessment of development expenditure, operating requirements, Government support, promoter contribution, external capital requirements, revenue scenarios, profitability, cash flows and financial viability.
- Business Planning and Commercialization Strategy: Development of the business model, implementation roadmap, partnership requirements, commercial priorities and route from product development to market deployment.
- DLI 2.0 Application Support: Following publication of the final scheme guidelines, assistance in structuring project information and preparing the management, commercial and financial documentation required to support an application.
Hmsa’s role is focused on management, commercial and financial advisory. Semiconductor engineering, chip architecture and detailed technical design should be undertaken by appropriately qualified semiconductor technology specialists.
Conclusion
DLI 2.0 could represent an important evolution in India’s semiconductor policy.
The shift from a principally reimbursement-oriented design incentive towards a combination of milestone-linked funding, equity co-investment, royalty financing, design infrastructure and potential market-access support suggests a broader objective: helping Indian semiconductor companies move from chip design capability to commercially deployable products and domestically owned intellectual property.
The opportunity, however, should be evaluated in the correct sequence.
A semiconductor business should first establish what it intends to develop, who will buy it, how it will be manufactured and validated, what the entire development programme will cost, and how it will be financed. DLI 2.0 should then be incorporated into that business case as one component of the overall funding and execution strategy.
The final administrative and operational guidelines will provide greater clarity on the actual economics of the scheme. Until then, the emerging framework provides a useful indication of the direction in which India’s semiconductor design policy is moving: towards greater domestic IP creation, stronger private-capital participation and deeper commercialization of Indian-designed semiconductor products.
Reference: The Economic Times
