India to Cover 9% of Chip Prototype Cost for Startups

India will pay chip design startups the equivalent of a 9% discount on fabrication costs, a move meant to help early-stage ventures afford the expensive process of building prototype chips.

The incentive, part of the government's Semicon 2.0 program, targets a specific cost problem. Large fabless chipmakers like Nvidia and Qualcomm get up to 30% discounts from commercial fabs, reducing their manufacturing cost by roughly 9% since fabrication accounts for about 30% of a chip's total cost. Small Indian startups get no such discount and often wait months in queue for their turn at a fab.

"Under Semicon 2.0, we'll offer Indian chip design startups this 9% as a deployment-linked incentive, so that early-stage ventures can absorb the cost impact when they are cash-strapped," Amitesh Sinha, additional secretary in the ministry of electronics and information technology and CEO of the India Semiconductor Mission, said in an interview with Mint.

The government is also exploring a memorandum of understanding with strategic chip fabs to prioritize Indian startups for production slots. Sinha noted that domestic startups have already made 12nm and 28nm trial chips at TSMC, the world's largest chip fabrication company.

India's first commercial chip fab, Tata's Dholera facility, is expected to be operational by 2028. Until then, startups will rely on foreign fabs and fabrication aggregators such as Belgium's Imec.

Sinha said the goal is not to immediately replicate advanced equipment like photolithography machines, which only one company in the world makes. "Right now, India's semiconductor ecosystem and supply chain are just beginning to develop," he said. "As it matures, we will see more and more machinery companies setting up shop here in India."

The Semicon 2.0 program also includes a royalty-based funding mechanism for large Indian companies and conglomerates. The government will match whatever capital these firms invest in semiconductor design and development, taking back 1.5 times its investment as royalty once the chip design starts generating revenue. Meity will hold the equity and royalty investments through a special purpose vehicle.

C-Dac, the Centre for Development of Advanced Computing, serves as the nodal agency for validating applications from chip design startups under the mission. Its work on an AI chip is funded separately from Semicon 2.0.

Sinha said the incentives are designed to help the ecosystem mature over the course of the mission. "The idea is to start somewhere and not aim right away to recreate a photolithography machine that only one company in the world makes," he said.