With Semicon India 2.0, how is India betting on its next start-up success stories?

The Unified Payments Interface (UPI) did not create Razorpay, PhonePe or an entire generation of fintech start-ups overnight. Instead, it created something more valuable. It laid the digital infrastructure that reduced friction, widened access and gave hundreds of companies the foundation to build, innovate and scale up.

India’s latest semiconductor and electronics push is attempting a similar leap. The Rs 1.27 lakh crore Semicon India 2.0 programme and the Rs 62,500 crore Mobile Phone Manufacturing Scheme (MPMS) are not just subsidies for factories. Together, they are an attempt to build the industrial foundation on which India’s next generation of deep-tech companies can build.  

For years, Indian start-ups excelled in Software-as-a-Service as the ecosystem—talent, internet connectivity, cloud infrastructure and a growing digital market—existed. But deep tech is different. A start-up in deep technology needs design tools, manufacturing access, testing facilities, components, customers, patient capital and years of runway. Most of these pieces are expensive or outside India.

That is what makes the latest initiatives different. The aim is to connect the missing pieces of India’s deep-tech ecosystem. While Semicon India 1.0—that had an outlay of Rs 76,000 crore —focused on establishing manufacturing capacity and laying the foundation, Semicon India 2.0 broadens the focus to building the ecosystem around it. Chip design, fabs, packaging, components, advanced materials, manufacturing equipment, robotics, industrial automation, R&D and domestic demand are all being brought together to create a self-reinforcing industrial flywheel. The idea is that each would strengthen the other, creating the conditions for start-ups to build, scale and compete globally.

Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA) and SEMI India, sees Semicon India 1.0 and 2.0 as part of a continuum built on what he calls the “4Cs"—credibility, capability, commitment and continuity. Semicon India 1.0 established India’s credibility, he tells BT. It approved 12 semiconductor projects, attracted over $20 billion investments and saw the first facilities start commercial operations. “Global confidence in India has risen because of policy continuity and visible execution,” he says.

Semicon India 2.0 is about building capability, he says. But its impact can only be understood when viewed alongside the MPM Scheme and the Electronics Component Manufacturing Scheme (ECMS). Together, these represent more than Rs 2.3 lakh crore of support spanning semiconductors, electronics manufacturing and components.

Collectively, the schemes cover the entire value chain—from chip design, fabs and advanced packaging to materials, manufacturing equipment, R&D, start-ups and talent development. “This is a holistic ecosystem,” says Chandak. “Each segment drives growth in another, creating a virtuous cycle that can strengthen India’s entire electronics and semiconductor industry.”

 

Time for Start-ups

For venture investors, the announcements are much more than another government incentive. They fundamentally change their investable universe in India. Vishesh Rajaram, Founding Partner at Speciale Invest, says earlier ISM was about anchoring large manufacturing capacity. This phase explicitly funds chip design, equipment, materials and packaging, the layers where start-ups, and not just conglomerates, compete.

“UPI didn’t just move payments. It created the rails for hundreds of fintech start-ups to build on. This time, India’s semiconductor policy has been architected with that same ecosystem logic,” says Rajaram.

For founders building chips, the schemes change how they build products. Take Mindgrove Technologies, an IIT Madras-incubated fabless semiconductor start-up developing indigenous processors for applications such as computer vision, security and edge computing. Shashwath T. R., the co-founder and CEO, says the real opportunity for start-ups isn’t owning billion-dollar fabrication plants but building products around them. “Manufacturing is never going to be a start-up game,” he says. “Start-ups can create value in chip design, intellectual property and specialised products.”  

Beyond Chips

If start-ups are unlikely to build semiconductor fabs themselves, where will they create value? Investors believe the answer lies in the layers surrounding manufacturing. “Components and materials are the layer that India has almost entirely imported until now,” says Amit Chand, founder of BYT Capital. “The Electronics Component Manufacturing Scheme was designed specifically to close that gap, making it one of the least crowded opportunities for start-ups.”

Chand says the MPM Scheme is not a deep-tech story by itself. It primarily incentivises large-scale phone assembly but creates downstream demand for a supplier ecosystem. As mobile production scales up, demand for camera modules, batteries, connectors, testing equipment and other critical components—many of which India still imports—is expected to rise. “The opportunity is not on the assembly line itself but the domestic component and testing ecosystem that feeds it,” he says.

Another new category is deep-tech companies building the picks-and-shovels layer, such as inspection tools, specialty gases and materials, packaging IP, says Rajaram, adding that five years ago, a start-up building semiconductor manufacturing equipment or advanced materials in India had almost no domestic anchor customer. On had to sell in Europe or the US, which is a brutal ask for an early-stage company. Now, there’s a growing domestic market to sell into, along with capital support to de-risk the R&D.

The Next Phase

The policy shift extends beyond incentives. Earlier this year, the government revised the recognition framework for deep-tech start-ups, extending the eligibility window from 10 years to 20 years and raising the turnover threshold from Rs 200 crore to Rs 300 crore. The move reflects an acknowledgement that deep-tech companies require longer gestation periods and take more time to commercialise than software start-ups.

However, the optimism comes with caveats. Building semiconductor capacity takes. While policy support and venture capital are improving, founders still face long development cycles, dependence on imported equipment and materials, and the challenge of commercialising complex technologies.

Shashwath cautions against expecting overnight results. “Building semiconductor products is a long cycle. Even with policy support, start-ups need access to manufacturing, testing, supply chains and customers before they can scale. Those parts of the ecosystem are still evolving.”

Whether India’s semiconductor push ultimately produces the next NVIDIA or ASML is a question that will take years to answer. But industry leaders agree that the immediate objective is not to create a handful of successful companies. It is to create the ecosystem that allows hundreds of them to emerge.

Chandak believes the real success of the policy will lie in how each layer of the value chain begins to reinforce the next. “Components feed electronics manufacturing and semiconductors feed electronics manufacturing. As electronics manufacturing and exports grow, they create demand for components and semiconductors, encouraging more investment across the ecosystem,” he says. “That is how the virtuous cycle begins.”

Much like UPI created the digital infrastructure that enabled India's fintech boom, Semicon India 2.0 and the MPM Scheme are attempting to build the industrial infrastructure for deep tech.

 

@PalakAgarwal64