India Chip Design Startups Finally Have Working Silicon. Now They Pay 50 Percent More Than Big Customers to Get It Built

India spent years building chip design startups, and by the industry own account that part worked. Many of them now have finished silicon. According to a Nikkei Asia report published Sunday, the part that is failing is everything after the tape-out: getting the chips manufactured, packaged and shipped at a price a customer will pay.

The economics of small volume explain most of it. A startup starting production orders around 100 wafers, while large chipmakers order tens of thousands a month, and foundries charge small buyers for the trouble. Rakesh Malik, founder of Bangalore-based Vervesemi, told Nikkei that fabs charge his company 50 percent more than they charge large customers. When the raw input costs half again as much, he said, pricing the final product competitively becomes very hard. Vervesemi, which has designed chips for power and telecom applications, raised 10 million dollars from investors this year.

Packaging is worse. India now has five domestic packaging plants, but Malik said most quoted him two to three times what factories abroad charge, so the wafers go overseas anyway. That triggers a different problem: one wafer comes back as roughly 5,000 packaged chips, a mismatch that confused Indian customs officials and took Vervesemi three months to sort out.

Then there is the photomask, the precise stencil used to print circuit patterns, which Indian firms pay for upfront. Reserve Bank of India rules require any physical asset paid for in advance to be brought into India within three years. The mask, however, has to stay at the foreign fab where it is used. Malik said the company is fighting that rule right now. A government official told Nikkei the friction reflects limited familiarity with the chip industry across ministries, states and customs, and that officials intervene quickly when shipments get stuck.

There are bright spots. Bengaluru-based Fermionic Design partnered with GlobalFoundries in June to manufacture radio frequency chips, the first Indian company to do so, and founder Gautam Singh said it is already shipping medium volumes with plans to scale slowly. India holds roughly 20 percent of the world chip design engineers, though most of them work for companies like Qualcomm and Intel rather than startups.

Government support exists but is narrow. Under the first phase of the India Semiconductor Mission, 24 chip design projects received funding covering half their design costs, capped at 15 crore rupees, plus sales incentives of up to 6 percent of turnover, and more than 100 companies got free access to design software at a Bengaluru center. The second phase, launched this year, shifts to reimbursing 9 percent of net chip sales and focuses on companies that have already built a chip. Cadence executive Jayashankar Narayanankutty told Nikkei that making a chip is only part of the process, and the bigger hurdle is offering the finished product at a cost that makes sense for the customer. Mukul Sarkar, founder of Orvis Semi, argued the opposite problem: 24 funded projects is too few, given that only two or three of these startups are likely to survive the decade.