Quick Take
- MeitY notified Semicon 2.0 on August 31, 2026, with a Rs 1,27,500 crore outlay.
- Chip-design startups can get up to Rs 15 crore in seed money and a 9% sales incentive.
- Experts warn strategic-track IP must be co-owned with C-DAC, which global VCs dislike.
India has notified the second phase of its chip programme, and founders have a new worry. The rules that hand startups fresh money may also block them from global venture capital.
The Ministry of Electronics and Information Technology notified Semicon 2.0 on August 31, 2026. The scheme carries an outlay of Rs 1,27,500 crore. It replaces the first India Semiconductor Mission, which ran on Rs 76,000 crore from 2021.
The new scheme is wider. It spans six pillars and 10 categories, covering design, fabs, packaging, equipment, materials and talent.
Founders welcomed the design-linked money. Pranay Kotasthane, deputy director of the Takshashila Institution, said the emphasis on design incentives is the right call. He also flagged where it could go wrong.
What does Semicon 2.0 give chip startups?
Semicon 2.0 gives Indian fabless startups seed money, co-investment and a sales incentive. The design pillar has three categories, and two of them are open to private companies.
Category 2 covers the commercial sector. Startups and small firms here can get design infrastructure, seed funding of up to Rs 15 crore, equity co-investment and royalty financing.
Only Indian-owned firms qualify. A company must be incorporated in India and controlled by Indian citizens or Overseas Citizens of India. It can still partner with a global firm in a consortium.
Category 3 is the Deployment-Linked Incentive, called the DLI. It reimburses 9% of net sales for up to five years on newly launched products. The cap is Rs 30 crore per application and Rs 120 crore per company.
The DLI works on the demand side. It pays a startup only after its chip sells. That design tackles supply-side gaps without directly fixing weak demand.
Why could the IP rules scare off global VC?
The IP problem sits in Category 1, the strategic track. It targets mission-critical silicon for defence, telecom and critical infrastructure. Projects here are picked through competitive bidding run by the Centre for Development of Advanced Computing, or C-DAC.
The notification mandates that all IP from Category 1 be co-owned by the applicant and C-DAC. That single clause is the sticking point.
Kotasthane warned that co-ownership with a state entity cannot sit easily with global venture capital. VCs want unencumbered IP. They need it to underwrite the next funding round.
His reading is blunt. The rule effectively limits Category 1 to defence contractors and state-backed consortia. Startups chasing overseas cash may stay away.
There is a second concern. C-DAC both runs the Category 1 bidding and co-owns the output. Kotasthane said the old conflict-of-interest question survives in this new shape.
What is the demand-side risk?
The demand-side risk is that Indian chip startups get funded to build, then find too few buyers at home. Support fixes the supply side. It does less for the market.
Neil Shah, co-founder and vice-president for research at Counterpoint Research, raised this point. Building the capacity is one job. Creating steady local demand for those chips is another.
The DLI is the government’s answer. By paying on net sales, it rewards a startup only when its product finds a customer. The tool is built to nudge adoption, not just output.
Whether one 9% incentive can move a whole market is the open question. That is the number founders and investors will watch first.
How does Semicon 2.0 compare with ISM 1.0?
Semicon 2.0 is bigger and broader than the first mission. ISM 1.0 ran four separate schemes. Semicon 2.0 folds everything into one scheme with six pillars.
The table below sets out the headline design-track numbers.
| Item | Detail under Semicon 2.0 |
|---|---|
| Total outlay | Rs 1,27,500 crore |
| ISM 1.0 outlay | Rs 76,000 crore |
| Seed funding for startups | Up to Rs 15 crore |
| DLI incentive | 9% of net sales, up to 5 years |
| DLI cap per application | Rs 30 crore |
| DLI cap per company | Rs 120 crore |
| Category 1 IP | Co-owned with C-DAC |
The Union Cabinet approved the outlay on July 15, 2026. IT Secretary S Krishnan said the timing was right for India to move to the next stage.
The verdict from experts is split by pillar. The design money earns praise. The IP clause and thin demand draw the caution.
What this means for you: If you run a fabless startup and want foreign VC, read the Category 1 IP terms before you bid, and plan your round around Category 2 instead.
StartupFeed Insight
The split verdict on Semicon 2.0 is really one question in two forms. Can state money and private capital share the same cap table? In Category 2, yes, because the firm keeps its IP. In Category 1, the C-DAC co-ownership clause makes that hard, so expect defence-linked players to crowd it while VC-backed founders route to Category 2 and the DLI. The Rs 120 crore company cap on the DLI is the figure to track. It sets a ceiling on how far the demand-side push can carry any single startup. We expect the first Category 2 seed approvals to be announced before March 2027, and the IP clause to be contested well before then.
— Avinash Mishra, Business Correspondent
Frequently Asked Questions
What this means for you: Check which design category fits your funding plan before you apply, because the IP terms differ sharply between them.
Have a tip? Write to us at editorial@startupfeed.in.
