Founders of Indian semiconductor startups, supported by the government's Design Linked Incentive (DLI) scheme, are urging for enhanced market access, intellectual property rights protection, and procurement support to foster the growth of the domestic chip industry. They expressed concerns that without government incentives, many nascent companies may struggle to maintain Indian ownership due to significant capital constraints and intense competition from established global players.
The DLI scheme, with an allocation of Rs 1,000 crore, has backed 24 domestic startups and MSMEs, aiding in the development of local chip-design capabilities. However, founders highlighted a lack of incentive for electronics manufacturers to adopt Indian-designed chips for products targeted at the domestic market. This situation, coupled with the difficulty of avoiding overseas funding, could lead to a dilution of Indian ownership, as companies may prioritize capital availability and scalability over nationalistic considerations.
Founders pointed to government procurement opportunities, particularly in areas like surveillance systems and CCTV deployments, as a crucial "low-hanging fruit" for encouraging the adoption of Indian chips. While existing regulations restrict Chinese components in certain applications, they do not specifically mandate or incentivize the use of Indian semiconductor products. This allows product makers to opt for chips from Taiwan, Singapore, or other markets without losing eligibility, leaving Indian chipmakers without a structural advantage.
Startups also face structural disadvantages against international competitors whose non-recurring engineering (NRE) costs have already been amortized. Indian startups, conversely, bear substantial upfront costs for tape-outs, IP licensing, and production readiness, which can range from ₹1 crore to ₹70 crore even with DLI support. This often results in foreign competitors offering comparable products at lower prices.
Additionally, concerns were raised regarding the 18% Goods and Services Tax (GST) levied on engineering test chips imported for R&D purposes after fabrication abroad, even though these chips are not intended for commercial sale. Founders suggested that the government should consider procurement preferences or pricing advantages for Indian semiconductor startups, similar to practices in other countries, while still maintaining quality standards.