DLI 2.0: Govt plans sops, local sourcing mandates to push chip demand

The government is considering targeted financial incentives for developing chipsets for 25 electronic product categories and introducing strict local sourcing rules for certain products like TV sets and air-conditioners, as it seeks to ensure demand for indigenously produced chips, officials in the know said.

The incentives are planned under the updated design-led incentive (DLI) scheme. The entire exercise is based on the view that demand for chips is key for the success of the Indian semiconductor story, they said.

Semiconductor industry executives have indicated that their future investment plans in India would depend on whether the chips produced here could also be sold locally, the officials said. The Ministry of Electronics and Information Technology (MeitY) believes the dual approach involving incentives and local sourcing regulations would help locally produced chips easily find consumers.


Expeditiously placing Indian chips in the chipsets or boards of consumer electronic products is a priority for the ministry now, as it prepares the ground for the India Semiconductor Mission 2.0, the officials said.

Besides TV sets and ACs, the other products that the government is considering for strict local sourcing rules include energy meters, refrigerators, telecom equipment and devices using Internet of Things sensors, an official said. "Firms have been told that R&D should be geared towards designing and production of chipsets used across a range of consumer items. As a first step, this will give them the expertise and industrial scale to advance onto more advanced electronics," he said.

The government has so far sanctioned 23 chip-design projects under the Rs 1,000 crore DLI scheme launched in December 2021. Led by domestic startups and MSMEs, these projects have received support to develop indigenous chips as well as system-on-chip solutions that integrate a complete computing system for areas such as surveillance cameras, energy meters, microprocessor IPs, and networking applications.

Strict local sourcing

The Centre may bring in enabling policies to mandate higher usage of domestically manufactured chips in consumer electronics, said another official.

"The aim is to incrementally increase the value addition in manufacturing in India across industry categories. Depending on the complexity of the electronic device, our value addition will rise to 15-35% after Indian chipsets are used,” he said. “Mandates for using Indian chips will be needed for effectively raising local consumption. This will also showcase the effectiveness of our products to global buyers," he added.

Local sourcing mandates may be accompanied by stricter certification rules, similar to the government’s earlier move to indigenise the equipment supply chain for CCTV cameras. In April last year, MeitY mandated that CCTV cameras imported, manufactured or retailed in India should be certified by the Standardisation Testing and Quality Certification Directorate of the ministry. Government sources had argued the need to safeguard national security interests given how advanced features such as facial recognition software have become common among imported CCTVs.

Officials said the government will continue to share access to industry-standard electronic design automation (EDA) tools under DLI 2.0. Prohibitively expensive, a single licence for these tools often cost tens of thousands of dollars.

"Government support is crucial at this stage. The focus will remain on smaller firms, startups and universities,” the second official said.

So far, 278 academic institutions and 72 companies have gained access to EDA tools for their chip design projects under DLI.