The government’s proposed Design Linked Incentive (DLI) scheme 2.0 for semiconductor and chip design companies is expected to shift from the reimbursement-heavy structure in its first iteration, with policymakers pushing for greater accountability, ownership, and control over intellectual property created with public funds.
The second phase of the scheme is being reworked to ensure that government support is no longer “free money”, and is instead linked to some form of equity, debt, or ownership consideration, said a senior official familiar with the discussions.
The Ministry of Electronics and Information Technology (MeitY) did not respond to ET's request for a comment.
“In DLI 1.0, the government provided grants largely through a reimbursement model, with no return or ownership. That approach is unlikely to continue,” the official said, adding every rupee disbursed under DLI 2.0 would now be accounted for in some form.
While the final structure has yet to be confirmed, policymakers are actively debating various instruments, including equity stakes, debt, or hybrid models such as compulsory convertible debentures.
The aim is to strike a balance between making the scheme attractive to industry while ensuring that the government retains oversight and safeguards taxpayer money, said the official.
The rethink has been driven in part by delays in reimbursements under the earlier model and concerns raised by auditors and oversight bodies.
There is also a strong view within the government that public funding must translate into certain strategic gains for the country, particularly in terms of semiconductor intellectual property ownership.
The official cited above said the revised scheme is also unlikely to be restricted only to startups and MSMEs, unlike DLI 1.0. Instead, the government is open to supporting larger and more complex chip design efforts, including module-level and system-level designs that have a clearer path to market adoption.
“Small components alone do not create market impact,” said the official. “To be commercially relevant, designs must fit into larger systems and reference architectures,” the official said, noting that the move could prompt the government to “open the purse wider” under the new scheme.
Despite broad agreement on the intent, the final contours of DLI 2.0 are still under discussion between government officials and the political leadership. While the scheme has already received in-principle approval, the exact funding and ownership model must be cleared before it can be sent to the Cabinet.
The official said once consensus is reached, the formal approval process could move quickly. However, the announcement timeline remains uncertain, with deliberations also factoring in the union Budget schedule and the broader political calendar.
According to the official, DLI 2.0 will be designed to ensure that strategic chip design capabilities and intellectual property developed with government support remain firmly under Indian control.
Launched in December 2021, by MeitY under the Semicon India Programme, the original DLI scheme 1.0 was conceived as a key instrument to build a self-reliant and globally competitive semiconductor design ecosystem in India.
Its objectives included supporting domestic startups, MSMEs, and companies engaged in chip design, reducing import reliance, and strengthening resilience of India’s electronics value chain.
Under DLI 1.0, eligible entities could receive product design incentives: reimbursements of up to 50% of eligible design expenditure, capped at Rs 15 crore per application; and deployment incentives: sales-linked incentives of 6% to 4% of net sales over five years, capped at Rs 30 crore, provided the design is successfully embedded in electronic products.
The scheme also brought design infrastructure support, including remote access to advanced Electronic Design Automation (EDA) tools, an IP core repository, prototyping support through multi-project wafer runs, and post-silicon validation assistance, facilitated via the ChipIN Centre.
Over its tenure, DLI 1.0 has backed 24 chip-design projects and helped startups and MSMEs move from concept to silicon, reinforcing India’s capabilities in areas ranging from video surveillance chips to Internet of Things (IoT) System-on-Chip (SoC) designs.
The second phase of the scheme is being reworked to ensure that government support is no longer “free money”, and is instead linked to some form of equity, debt, or ownership consideration, said a senior official familiar with the discussions.
The Ministry of Electronics and Information Technology (MeitY) did not respond to ET's request for a comment.
“In DLI 1.0, the government provided grants largely through a reimbursement model, with no return or ownership. That approach is unlikely to continue,” the official said, adding every rupee disbursed under DLI 2.0 would now be accounted for in some form.
While the final structure has yet to be confirmed, policymakers are actively debating various instruments, including equity stakes, debt, or hybrid models such as compulsory convertible debentures.
The aim is to strike a balance between making the scheme attractive to industry while ensuring that the government retains oversight and safeguards taxpayer money, said the official.
The rethink has been driven in part by delays in reimbursements under the earlier model and concerns raised by auditors and oversight bodies.
There is also a strong view within the government that public funding must translate into certain strategic gains for the country, particularly in terms of semiconductor intellectual property ownership.
The official cited above said the revised scheme is also unlikely to be restricted only to startups and MSMEs, unlike DLI 1.0. Instead, the government is open to supporting larger and more complex chip design efforts, including module-level and system-level designs that have a clearer path to market adoption.
“Small components alone do not create market impact,” said the official. “To be commercially relevant, designs must fit into larger systems and reference architectures,” the official said, noting that the move could prompt the government to “open the purse wider” under the new scheme.
Despite broad agreement on the intent, the final contours of DLI 2.0 are still under discussion between government officials and the political leadership. While the scheme has already received in-principle approval, the exact funding and ownership model must be cleared before it can be sent to the Cabinet.
The official said once consensus is reached, the formal approval process could move quickly. However, the announcement timeline remains uncertain, with deliberations also factoring in the union Budget schedule and the broader political calendar.
According to the official, DLI 2.0 will be designed to ensure that strategic chip design capabilities and intellectual property developed with government support remain firmly under Indian control.
Launched in December 2021, by MeitY under the Semicon India Programme, the original DLI scheme 1.0 was conceived as a key instrument to build a self-reliant and globally competitive semiconductor design ecosystem in India.
Its objectives included supporting domestic startups, MSMEs, and companies engaged in chip design, reducing import reliance, and strengthening resilience of India’s electronics value chain.
Under DLI 1.0, eligible entities could receive product design incentives: reimbursements of up to 50% of eligible design expenditure, capped at Rs 15 crore per application; and deployment incentives: sales-linked incentives of 6% to 4% of net sales over five years, capped at Rs 30 crore, provided the design is successfully embedded in electronic products.
The scheme also brought design infrastructure support, including remote access to advanced Electronic Design Automation (EDA) tools, an IP core repository, prototyping support through multi-project wafer runs, and post-silicon validation assistance, facilitated via the ChipIN Centre.
Over its tenure, DLI 1.0 has backed 24 chip-design projects and helped startups and MSMEs move from concept to silicon, reinforcing India’s capabilities in areas ranging from video surveillance chips to Internet of Things (IoT) System-on-Chip (SoC) designs.
