With DLI 2.0, the government reportedly plans equity-linked semiconductor incentives, tighter IP control and support for larger chip designs, replacing grant-heavy funding under the earlier scheme.
The government is reworking its Design Linked Incentive (DLI) scheme for semiconductor companies, signalling a shift away from grant-heavy support towards funding models tied to equity, debt or ownership of intellectual property.
According to a report by The Economic Times, the proposed DLI 2.0 framework is being redesigned to improve accountability and ensure public funding delivers strategic returns. Unlike the first phase, government support will no longer be limited to reimbursements, a senior official familiar with the discussions said.
Under DLI 1.0, incentives were largely disbursed as grants with no ownership or financial upside for the government. That approach is unlikely to continue. Policymakers are now examining structures such as equity participation, debt instruments and hybrid options including compulsory convertible debentures.
The aim is to balance industry incentives with tighter oversight and protection of taxpayer funds. Concerns over delayed reimbursements under the earlier model, as well as scrutiny from auditors, have accelerated the rethink.
The report also said the revised scheme will prioritise strategic gains, particularly the retention of semiconductor intellectual property developed with public support within India. The government wants clearer control over IP created through state funding.
DLI 2.0 may also expand beyond startups and MSMEs. Unlike the first phase, the new scheme could support larger chip design efforts, including module-level and system-level designs with stronger commercial relevance. Officials said standalone component designs often fail to achieve market impact.
By supporting more complex designs integrated into broader systems, the government is open to increasing funding scale. However, the final structure of the scheme is still under discussion.
While DLI 2.0 has received in-principle approval, key decisions on funding instruments and ownership models are pending. Cabinet clearance will be required before a formal rollout. The timeline remains uncertain, with deliberations linked to the Union Budget and the political calendar.
Launched in December 2021 under the Semicon India programme, DLI 1.0 aimed to build a domestic chip design ecosystem. It supported 24 projects and offered reimbursements of up to 50% of design costs, along with sales-linked incentives and access to advanced design infrastructure through the ChipIN Centre.
