Daybreak - India wants a chip-design hub—without the founders who can make it happen

Episode Date: April 6, 2026

India wants to design its own semiconductor chips. To help, the government launched a scheme with money and tools for startups that do exactly that. But there's a catch — and it's keeping out the very people best placed to build this industry. The engineers who spent decades in Silicon Valley, built the chips inside your devices, and are now coming home. A regulator that's also a competitor. And a factory that was supposed to be for Indian startups — but probably won't be.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

In the 1990s, you'd be surprised to know that the San Francisco Bay area actually looked more Indian than American. It was a city known for baseball, but large crowds used to gather to watch Indian origin engineers play cricket instead. Sanjapal Samudram, the CEO of a chip design firm called Seven Race Semiconductors, even remembered that the teams were named after Bangalore neighborhoods like Malashvram and Jayanagar. And these same cricket playing engineers are the ones who built the foundation for the US chip and software ecosystem. Three decades later, many from this diaspora are returning to India. And several of them are coming back to their homelands with the same dream, building semiconductor ventures here.

But even as India is pushing to develop a self-sustaining semiconductor sector of its own, after spending years being dependent on other countries, these ambitions are now running into a wall. The thing is, even as recently as last year, reports showed that nearly 90% of semiconductor components used domestically in India were sourced from abroad, especially from countries like China, South Korea and Singapore. This dependence became far too obvious to ignore, especially in 2020 during the pandemic, when a global chip shortage, shut down automotive plants and stalled electronic supply chains. Policymakers saw this as a wake-up call. Semiconductors were no longer just an industrial concern.

It was also a national security priority because now it was integral to defense systems, space missions, telecom infrastructure and even energy transition technologies. Which is how the production linked incentive or PLI scheme and the design linked incentive or DLI scheme came to be. Because India wants to build its own semiconductor industry with the builders and the designers. And the DLI scheme is where there's an interesting qualification. It's that the people who apply to it have to first prove how Indian they actually are. The 1000-crow-rupes program was launched in 2021 to strengthen the domestic chip design ecosystem

and it requires its beneficiaries to be majority owned by Indians only. Well, for a sector that desperately needs talent, that rule is kind of backfiring. Instead of filtering for the best, the scheme is actually now discouraging some of the most promising companies from even participating. Raja Manikam P, founder of Chennai-based fabulous startup IVP semiconductors, told my colleague, the Ken reporter Priil Mahata, that there's been a strong reluctance among the Indian diaspora to apply for the DLI scheme. In comparison to the PLI scheme for electronics manufacturing, which was open to all except Chinese firms, the difference is stark. Now, the PLI scheme actually drew industry heavyweeds

like Samsung, Foxcon and Tata Electronics who all drives visible scale and expansion. Meanwhile, the DLI scheme has been struggling. In its first phase, only 24 startups were onboarded, and that's against a target of 100. In FI 26, the government even cut that year's budget in half to just a little more than 100 crore rupees. Now, as India prepares a second phase for this scheme, aiming to at least double the number of beneficiaries it currently has, the sector is caught in a paradox.

On one hand, the very founders it hopes to attract, the ones with decades of experience in Silicon Valley and armed with networks and capital are finding themselves ineligible. On the other, companies backed by foreign venture capital are shut out before they even begin, all of which is putting the sector in a very peculiar bind. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Tretcher Virgis, and every day of the week, my co-host, Ninta Sharma and I will bring you one news story that is worth understanding and worth your time. Today is Tuesday, the 7th of April. Palsamudram, who I mentioned earlier, has been back in India for nearly two decades. In that time, he led the wireless unit at Texas Instruments, a chipmaker.

He advised a VC firm called Canbank, and then he set up seven race semiconductors in 23. Despite all that though, all his work and the taxes he has paid didn't count towards a beneficial Indian ownership for his planned semiconductor firm all because he still remains a US citizen. He told us that it was not really a matter of choice. According to him, the eligibility structure just doesn't really leave foreign citizens with a real option to participate. Now, eligibility is just the first barrier. The DLI ownership clause, says that more than 50% of the company ownership must be Indian. And that applies to all three DLI tracks,

product development, post-sales deployment and access to design tools. But for those seeking reimbursements, it actually gets even harder. Startups must spend their own money first, then claim back up to half the cost, all while maintaining majority Indian ownership for at least three years. If they don't do this, they would have to return the incentive and that too with interest. As a result, out of the 128 companies that applied for electronic design automation tools access,

82% were approved. But for those seeking actual financial support, only 24 made it through. Manikyam, the founder I mentioned earlier, told Priel that not that many companies were rejected because most of them didn't even apply. Take this company called Mozart Semiconductor for example, which was set up in 2025. It makes chips for battery management that govern the safety and efficiency in lithium-ion batteries used in everything from EVs to data centers. Its founder, Rajesh Gupta, has nearly three decades of work experience in both the US and India,

including Stins at Micron Technologies and AMS Osram, whose chips went into Tesla cars. Basically, Gupta has been in this industry for so long that he is well aware of exactly which caps need to be plugged where. He returned to India 13 years ago and he holds an overseas citizen of India card. But that still isn't enough to help his country cross the DLI eligibility barrier. So with DLI's first phase closed, he's keeping his options open and that includes pursuing foreign investors. He told Priel that if he was to secure significant foreign funding,

he would probably need to give up on the scheme. He thinks of it as a practical choice, especially since the wait for DLI 2.0 has been quite long. And also, it seems like the second phase will come with its own set of challenges for the founders who do stick it out. The second phase is actually proposing that if companies are acquired by a foreign buyer,

founders must return thrice the incentive they received. In a sector where foreign acquisition is a default exit strategy, this, as Manicum says, puts the cart before the horse. But more fundamentally, this process seems to overlook how chip design startups are built in the first place. Unlike software companies, these firms need heavy upfront capital and industry access early on to develop their products. For instance, US-based Nuvia and Pensando, which are both co-founded by Indian origin engineers, by the way, raised hundreds of millions before their billion-dollar acquisitions by Qualcomm and AMD respectively.

And for companies finding their foot in India, early dilution is less a choice and more a prerequisite. They have to depend on mature foreign ecosystems. Stay tuned. The DLI hasn't been without impact. It has actually given a handful of startups the push to get off the ground. For Shashvah Tiar, the co-founder of Mind Grove Technologies in Chennai, the DLI was a vitamin first and a lifesaver later. He told us that access to electronic design automation tools and the badge of incentives give credibility to early stage companies. But the scale of the impact is limited.

The thing is, India's chip design sector gets only a fraction of the 76,000 crore semiconductor outlay, even as the government reportedly plans an additional $11,000 billion push. Even the potential beneficiaries are being highly cautious. Shashvah told us that many are still watching and waiting. to see what happens to the first crop. The outlook is to basically see one or two companies make it and then maybe the other companies will consider applying for DLI 2.0. That caution is actually pretty understandable.

See, making it in chip design is harder than it looks and DLI barely scratches the surface of what is necessary. The product development incentive is capped at rupees 15th row, which amounts to about $1.6 million. Meanwhile, Mozart's Gupta told us that chip projects can cost anywhere from $500 million, which means the incentive wouldn't even cover salaries before a chip goes to the final stage in just a design phase. So, DLI is more a good to have than a must have.

It's useful mainly as a signal to unlock VC funding. But even if companies manage to sail through, their constraints don't really end with the funding. More on this in the next segment. The bigger hurdle actually lies with the CDAC or the Centre for Development of Advanced Computing, which is the agency that runs the scheme. CDAC also develops its own chips and design infrastructure. That makes it both a facilitator and a competitor. Start-ups applying to the scheme must share sensitive design and market data with a direct competitor.

Multiple industry stakeholders told the Ken that this creates a deeply uncomfortable position. In some cases, CDAC Ashley nudges applicants toward using its own RISCV processors, which is basically an instructional set, so that everyone is working within one ecosystem and that can make access to get support much easier. Unsurprisingly, this conflict is a deal breaker for many startups. Several startups have reportedly walked away, not over the ownership clause, but because exposing their IP to a competitor for a rupees 15-fotroncent, simply doesn't make business sense. But even beyond the scheme, structural barriers remain.

For one, getting global foundries to produce chips for small Indian start-ups is a major bottleneck. Manikam explained that it's like a startup walking into TSM or Taiwan Semiconductor manufacturing company, which is one of the world's largest foundries and asking for 100 wafers. Because TSMC makes a million waferes a month, which means they have no incentive to give a small startup any mine share. It's not just that. Design and manufacturing also don't really seem to be converging. Tata Electronics upcoming Fab in Dholera, expected by 2008, was seen as a potential home for Indian startup chips. But it will most likely focus on global giants like Qualcomm, AMD and Nvidia, not domestic newcomers. So even when startups do manage to wrap up the

design stage, like Minesgrove did before applying for DLI, things get complicated. Sunilji Acharya of Kanataka Semiconductor Fabless Accelerator Lab told Priel that electronics manufacturers need stronger incentives to actually adopt Indian design chips. The thing is, in practice, manufacturers have been focused on battery packs and circuit boards, not chips. Acharya captured the entire disconnect in the sector through a single sentence. I made a chip, I tested it, it's fantastic. Now, who's going to buy it? Now, DLI's second phase is expected to address some of these gaps.

For one, it could come with a larger outlay of 5,000 crore rupees and the funding could shift to a pari-pasu structure in which the state matches private investments rather than reimbursing it later. Even so, Gupta told us that if you were to look at the total sales of integrated circuits by Indian Fabulous companies, it's actually pretty minuscule. So the DLI scheme is meant to lay a foundation. But the next phase can't just be about better design policy. It has to go beyond that.

It has to help Indian ship companies plug into the way the global semiconductor ecosystem actually already works. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.