Why India’s government just became a semiconductor startup’s shareholder

Governments taking equity in private tech companies is becoming a global pattern, and India has just joined it. The Union cabinet approved Semicon 2.0 this week, a Rs 1,27,500 crore scheme that expands the country’s semiconductor strategy beyond fabrication and assembly, and lets the government hold direct equity stakes in chip startups alongside venture capital firms, in place of one-time grants.

The change follows a similar move by the United States, where the Trump administration converted part of Intel’s CHIPS Act grants into a passive 9.9% equity stake while leaving the company’s management fully in control. India’s own version is designed with comparable guardrails.

India Semiconductor Mission (ISM) chief executive Amitesh Kumar Sinha told TOI that the redesign was driven by what officials learned from the earlier Design Linked Incentive (DLI) scheme, where many startups built working chip designs and proof-of-concepts but struggled to raise the hundreds of crores needed for product qualification, commercialisation and scale-up.

“The real challenge begins after the design stage. That’s where capital requirements become very large, and traditional startup funding models often fall short,” Sinha said. Under Semicon 2.0, startups will get seed capital first, then larger tranches tied to specific technical and commercial milestones, with an internal committee still finalising the programme’s details.

Sinha said the government’s stake will generally stay below 50%, without board representation or a role in day-to-day management, so founders keep operational control. Founders can later buy back the government’s stake, and companies remain free to raise fresh capital or pursue acquisitions at any point.

“We will exit at the prevailing valuation, recover our investment and reinvest that capital into the next generation of semiconductor startups. Govt is not here to make money. Our objective is to support startups and build the ecosystem,” Sinha said.

[Wikimedia Commons/by Kevin CW Lu]