India Semiconductor Mission: Legal Framework for PLI and Electronics Manufacturing

India's semiconductor ambition has matured from policy aspiration to concrete legal framework. The India Semiconductor Mission (ISM), established as an independent statutory body, drives a comprehensive strategy to build indigenous semiconductor design, manufacturing, and packaging capabilities. The Production Linked Incentive (PLI) Scheme, Design Linked Incentive (DLI) Scheme, and Semiconductor Fab Support Scheme form the legal and fiscal backbone of this initiative. In March 2025, the Cabinet approved a massive Rs 22,919 crore expansion of the PLI Scheme for non-semiconductor electronics manufacturing over six years, expected to attract Rs 59,350 crore in cumulative investment and generate over 91,600 direct jobs. For companies in the semiconductor and electronics sector, understanding the legal framework governing these incentives is critical. Incentive schemes come with compliance obligations, IP ownership restrictions, technology transfer requirements, and export conditions that carry significant contractual and regulatory consequences.

The India Semiconductor Mission: Strategic Vision and Governance

The India Semiconductor Mission operates as an independent body under the administrative ambit of the Ministry of Electronics and Information Technology (MEITY). ISM functions as a specialized implementation agency, coordinating between the government, semiconductor manufacturers, design houses, and academia. The strategic objective is to reduce India's dependency on foreign semiconductor imports, which currently account for a significant portion of India's import bill, and to position India as a reliable manufacturing hub in the global semiconductor supply chain. ISM operates with a governing board comprising government officials, industry representatives, and domain experts. The organizational structure includes vertical units focused on manufacturing, design services, packaging, and ecosystem development. ISM also manages the Semicon India initiative, a biennial conference attracting global semiconductor stakeholders. The legal framework governing ISM is established through Government Resolutions and administrative orders issued by MEITY. ISM does not have its own Act, but operates within the delegated authority framework of MEITY under the broader constitutional and statutory framework governing industrial development and foreign direct investment.

Production Linked Incentive Scheme: Structure and Eligibility

Design Linked Incentive Scheme for Semiconductor Design

The Design Linked Incentive (DLI) Scheme complements PLI by supporting semiconductor and system-on-chip (SoC) design services. While PLI focuses on manufacturing, DLI incentivizes domestic design capabilities in application processors, microcontrollers, wireless connectivity chips, and analog/power management ICs. Under the DLI Scheme, designers and fabless semiconductor companies can claim incentives based on design royalties earned from licensing their IP to semiconductor manufacturers globally. The incentive is calculated as a percentage of recurring royalties or design services revenue earned within five years from design completion. The scheme requires design houses to meet certain R&D thresholds and retain a minimum portion of design work within India. For companies engaged in mixed-signal and analog chip design, the DLI Scheme provides crucial support in a domain where India has been historically weak. The scheme explicitly allows for collaborations between domestic design houses and foreign foundries, provided the design IP core remains Indian-owned or under Indian control. This provision balances openness to global partnerships with the objective of building domestic semiconductor design capacity.

Semiconductor Fab Support Scheme and Capital Subsidies

The Semiconductor Fab Support Scheme provides capital subsidies for companies establishing semiconductor fabrication facilities (fabs) or refurbished fabs in India. The scheme offers up to 50 percent of the total project cost as fiscal support, with higher support for fabs producing advanced-node semiconductors (sub-28 nanometer). The government commitment under this scheme is substantial: several fabs have already received approval, including fabrication facilities by international players considering India as an alternative to existing hubs. The support is contingent on technology transfer commitments, domestic skill development, and alignment with India's semiconductor roadmap. Companies receiving Fab Support Scheme benefits must meet specific milestones for capital deployment, manufacturing commencement, and production targets. Non-compliance with milestones can trigger clawback provisions requiring repayment of subsidies. The scheme emphasizes backward integration: fab operators must preferentially source inputs, chemicals, and gases from domestic suppliers where available, supporting ecosystem development.

Legal and Compliance Considerations for Incentive Recipients

Companies seeking PLI, DLI, or Fab Support benefits must navigate complex compliance requirements. IP ownership becomes critical: schemes typically require that core intellectual property remains Indian-owned or substantially controlled by Indian entities. For companies using licensed foreign technology, the incentive scheme mandates specific documentation and contractual arrangements protecting India's interest in the IP developed using incentive support. Technology transfer obligations require beneficiary companies to establish technology training programs, engage with academic institutions, and publish research or participate in public-private partnerships. Export conditions vary by scheme: while PLI products can be sold domestically or exported, certain strategic products may face export restrictions or priority domestic allocation requirements. Incentive recipients must maintain detailed cost accounting and production records, subject to government audit by MEITY and the Department of Industrial Policy and Promotion. Capital subsidy clawback provisions require companies to refund subsidies if they fail to meet specified production milestones or capital investment targets within agreed timelines. Employment creation commitments, while not always strictly enforceable, are tracked for reputational and future scheme participation. Companies must also comply with Make in India labeling requirements if they wish to claim products as domestically manufactured. These compliance obligations require ongoing legal management and documentation. Companies should establish compliance committees, engage specialized consultants, and maintain contemporaneous records to demonstrate compliance and protect subsidy entitlements.