India is ratcheting up policy support for the domestic semiconductor industry, having built up momentum in commercial production, design and innovation, and talent development. Twelve major chip and display manufacturing projects are underway, over 200 chips have been designed indigenously and 67,000 engineers have been trained in chip fabrication and packaging. These are outcomes of phase 1 of India Semiconductor Mission (Semicon 1), which attracted ₹1.64 lakh cr. Semicon 2 has loftier ambitions and a much bigger budget. The standout feature of the initiative approved last week is GoI's new avatar as venture capitalist for semiconductor startups.

Designing a chip is one thing, producing it at scale is quite another. GoI has identified the funding hurdle semiconductor startups face and is offering public equity as private equity. This is an ingenious way to skirt the structural issues of PPP - inequitable risk allocation and misaligned objectives. Venture capital of the nature GoI is offering semiconductor startups comes without the usual riders over managerial control and business strategy. It provides additional comfort over the returns' horizon. India is not alone in converting grants into equity for the chip industry and is pushing tested levers to get ahead in the semiconductor race.

The mezzanine equity support should not come into conflict with objectives of venture capitalists investing in Indian chip startups. They retain managerial and strategic control through majority holdings. They are free to time their exit, and government equity retains its autonomy over its investment period. This hybrid investment model usually has a multiplier effect with private equity roping in several times the invested public equity. The model works precisely because the government plays the role of a limited partner to private venture capital. Venture capital is acknowledged as a catalyst for innovation, and GoI is doing well to direct it into strategic sectors like semiconductors.