As the government pushes pari-passu funding, tensions reportedly rise over India’s revamped DLI scheme, the industry seeks upfront support. Debates spark on safeguards, caps, and foreign acquisitions.
Many differences have emerged between policymakers and the semiconductor industry over the proposed funding model under the government’s upcoming Design-Linked Incentive (DLI) 2.0 scheme, according to a report by The Economic Times.
The DLI scheme aims to support India’s domestic chip design ecosystem. As the second phase is being prepared, debate has intensified over how public funds should be allocated and what level of market validation companies must demonstrate to receive support.
As per ET, the key shift proposed in DLI 2.0 is a move from a reimbursement-based system to a pari-passu funding structure. Under DLI 1.0, companies had to invest first and were later eligible to claim up to 50% reimbursement, with support capped at ₹150 million per applicant.
The new framework proposes that for every rupee invested by a company’s private investors, the government would match it with an equal contribution, effectively creating a joint funding mechanism.
However, a section of the industry wants the government to provide upfront financial support without insisting on matching private capital, regardless of company size.
Officials say this demand raises serious concerns about commercial viability and responsible use of taxpayer money. They argue that if firms cannot secure investor funding for even half of a project, it indicates either weak confidence in the idea or inconsistencies in their claims.
The government fears unconditional funding could be misused, with firms potentially shutting operations after receiving public funds. The pari-passu structure, they stress, ensures basic market validation before funds are committed.
Another major change proposed is the removal of the ₹150 million funding cap, enabling projects of any scale, including those requiring investments in the thousands of crores.
Authorities want venture capital and private investors to evaluate larger companies rather than relying on government assessments, after which the state would match investment on identical terms.
A further point of contention is a clause requiring three-times repayment of government support if a foreign entity acquires a DLI-backed firm and its intellectual property moves out of India. Industry players have strongly objected to this requirement.
Officials maintain that finalising a balanced structure is essential to build a robust domestic chip design ecosystem, while avoiding a ‘blank cheque’ approach with public funds.
