India’s DLI-Backed Semiconductor Startups Demand Government Procurement for Telecom Infrastructure

Indian semiconductor startups backed by the government’s ₹1,000-crore Design Linked Incentive (DLI) scheme are demanding preferential procurement in government and public sector projects, arguing that domestic chip design capabilities need guaranteed market access to survive, according to a report from ETTelecom. Executives from 24 funded startups and MSMEs contend that while the scheme has successfully seeded a domestic chip-design ecosystem, a lack of commercial deployment pathways threatens its long-term viability. For telecom operators and network equipment manufacturers, this push signals a potential shift in the supply chain for critical components like 5G baseband chips, IoT controllers, and network switching silicon, moving from reliance on global vendors like Qualcomm, Broadcom, and MediaTek to indigenous alternatives.

The DLI Scheme’s Telecom-Focused Design Pipeline

The DLI scheme, administered by the Ministry of Electronics and Information Technology (MeitY) under the broader India Semiconductor Mission, offers up to 50% reimbursement of design expenditures for approved startups and MSMEs developing chips for a range of applications. To date, the ₹1,000 crore (approximately $120 million) fund has disbursed support to 24 companies. While the original article did not specify all beneficiaries, telecom-relevant design areas are a clear focus. These include chips for 5G and 4G radio units, IoT edge devices, power management for network infrastructure, and data processing units for optical and wireless networks.

Industry executives point to a critical gap: the scheme covers design costs but does not mandate or incentivize the adoption of these chips by electronics manufacturers serving the Indian market. “There is no incentive for electronics makers to adopt Indian chips for products aimed at the domestic market,” one executive stated. This creates a chicken-and-egg problem for telecom infrastructure. Network operators procure equipment from OEMs like Nokia, Ericsson, Huawei, or domestic firms like Sterlite Tech and Tejas Networks. Those OEMs source critical semiconductors from established global vendors. Without a guaranteed demand pipeline, Indian design houses cannot scale to achieve cost competitiveness or attract further investment for fabrication.

Specific requests from the cohort include a government directive for preferential procurement of products containing DLI-backed chips in public sector projects, including BharatNet broadband expansion, National Optical Fiber Network (NOFN) upgrades, and state-led smart city IoT deployments. They also seek stronger intellectual property (IP) protection mechanisms to safeguard their designs, which are often licensed to global foundries for manufacturing.

Impact on Telecom Operators and Network Equipment Vendors

The push for government procurement creates a tangible, near-term consideration for telecom operators (telcos) and equipment vendors. If mandated, public sector network projects—which constitute a significant portion of India’s infrastructure spend—would need to incorporate domestically designed semiconductors. This could affect procurement strategies and technical specifications for upcoming tenders.

For Indian telecom operators like Reliance Jio, Bharti Airtel, and Vodafone Idea, participating in government-backed projects (such as rural connectivity initiatives) may require them to work with OEMs that integrate Indian chips. This could influence vendor selection and potentially introduce new domestic OEMs into the supply chain. The technical implications are significant: integrating new silicon requires validation, testing, and potential adjustments to network architecture. Operators must assess whether these chips meet performance benchmarks for latency, throughput, and power efficiency compared to incumbent solutions.

For global network equipment vendors, a procurement mandate adds a new dimension to their India market strategy. To compete for public sector contracts, they may need to partner with Indian design houses to integrate locally developed silicon into their product lines, or establish design subsidiaries in India to tap into the DLI scheme themselves. This aligns with broader trends of localization in telecom infrastructure, driven by both cost and geopolitical factors.

Domestic equipment manufacturers stand to gain the most. Companies like Tejas Networks (designing optical networking chips), Saankhya Labs (radio chips), and Signalchip (5G baseband processors) could see their DLI-backed designs become de facto standards for government projects. This would provide them with a stable revenue stream to fund further R&D and potentially move towards domestic fabrication under the Semiconductor Manufacturing Incentive scheme.

Strategic Implications for Global Telecom Supply Chains

India’s move to bolster its semiconductor design ecosystem is part of a global recalibration of telecom supply chains. The US CHIPS Act, Europe’s Chips Joint Undertaking, and China’s massive investments have all emphasized reducing dependency on concentrated manufacturing hubs. For telecom, which relies heavily on semiconductors for everything from base stations to core routers, supply chain diversification is a strategic imperative.

The DLI scheme’s focus on design—rather than immediate fabrication—is a pragmatic first step. India currently lacks advanced semiconductor fabrication plants (fabs), but design is a high-value, less capital-intensive entry point. Successful designs can be manufactured at existing global foundries like TSMC, GlobalFoundries, or Samsung while building towards domestic fabrication capacity. For telecom, this means that Indian-designed chips could enter the global supply chain via partnerships, potentially offering cost-competitive alternatives for specific functions like power amplifiers, network security processors, or RF transceivers.

However, the industry executives’ call for procurement support highlights the commercial hurdle. Global telecom OEMs have entrenched relationships with chip vendors and rigorous qualification processes. A government mandate creates an artificial market to bootstrap the industry, similar to China’s early “indigenous innovation” policies. This could lead to a bifurcated supply chain in India: public sector projects using domestic chips, while private operator networks continue to use global silicon until the domestic offerings prove themselves in performance and scale.

The intellectual property protection demand is equally critical. Telecom chip designs often involve licensed IP blocks and proprietary architectures. Without strong legal safeguards, Indian startups risk having their designs replicated or reverse-engineered by larger global players, undermining their commercial value.

Forward-Look: Integration into 5G, IoT, and Next-Gen Networks

The success of India’s DLI-backed semiconductor initiative will be measured by its integration into active telecom networks. The next phase beyond design and procurement must focus on interoperability, standardization, and scale.

For 5G, Indian chips targeting the Radio Access Network (RAN)—such as baseband processors, RFICs, and power amplifiers—need to comply with 3GPP standards and pass interoperability testing with major core network vendors. This requires collaboration between startups, OEMs, and operators in testbed environments. The government could facilitate this through its 5G test labs and public sector deployment projects.

In IoT and smart city deployments, which are heavily driven by public sector initiatives, Indian-designed low-power controllers and connectivity chips (for LTE-M, NB-IoT) could find early adoption. These applications often have less stringent performance requirements than core telecom infrastructure, offering a viable entry market.

Long-term, the ambition is to create a vertically integrated semiconductor sector for telecom: Indian designs manufactured in Indian fabs (supported by the manufacturing incentive scheme) and deployed in Indian network infrastructure. This would reduce import dependency, lower costs, and align with national security objectives for critical infrastructure.

For telecom operators and infrastructure investors, the key takeaway is to monitor policy developments around procurement mandates and engage with Indian semiconductor startups for pilot integrations. The DLI scheme represents a strategic investment in telecom infrastructure sovereignty, and its outcomes will shape component sourcing, vendor relationships, and network economics in the Indian market for years to come.