The article was first published on The Economic Times Online on January 10 2026. Please click here to read the article.
India is currently ranked amongst the fastest growing large economy riding high on its demographic dividend and fueled primarily by its services sector, but its long-term goal of becoming a Viksit Bharat by 2047 will require sustained GDP growth with significant pivots from the current play book.
With the fast paced developments in the world of AI, Quantum Computing, Advanced Connectivity and Edge Computing and the likes and their likely disproportionate impact on a global scale, it is but imperative for India to make rapid investments in strategic technologies.
The country is currently pushing into strategic technologies through missions in AI, quantum tech, semiconductors and other deep tech areas. These sectors rely heavily on intellectual property, specialised talent and global partnerships, giving rise to cross border M&A and joint ventures which become essential for building capacity and capability.
India is attracting more interest from global investors, but strategic tech deals often bring IP rich assets and non-standard structures that pose challenges under the current rules governing cross border transactions. To unlock India’s full potential in this space, the domestic tax and regulatory frameworks need to evolve in a way that supports deal certainty, encourages strategic collaborations and addresses the practical hurdles faced when executing cross border strategic tech deals.
As India makes inroads into strategic technologies, he foreign investment framework has become more streamlined, with most sectors now eligible for full foreign ownership under the automatic route.
On outbound investments, the current regime still presents practical constraints by capping the amount of investments to lower of USD 1 billion or 400% of the net-worth of the entity resulting in restrictions in the ability of Indian entities looking to acquire sizeable assets abroad.
Added to this are concerns around round tripping and the prolonged approval process for investments from countries sharing a land border with India, China in particular, which often results in limiting creation of efficient joint ventures structures with Chinese partners.
Given China’s progress in areas like rare earths, high tech manufacturing and several deep tech capabilities, India could benefit from carefully structured collaboration with Chinese players.
A possible way forward could be to simplify the rigors of Press Note 3 allowing a relatively more flexible approach to Chinese investments. A more predictable and calibrated approach would help Indian firms access global capabilities while fully maintaining national security priorities.
In the recent times, to boost manufacturing and to attract industrial investment, India has taken several measures including reduced corporate tax rates for new manufacturing firms, PLI schemes for sectors of strategic relevance and GST harmonisation. The government has also enacted the new Income-tax Act 2025 which is a step toward modernising the domestic tax framework.
Provisions around corporate restructuring however have largely remained untouched and hence the upcoming Budget 2026 provides an opportunity for the Finance Minister to introduce relevant reforms in this space. At the same time, there is still room to shape a tax regime that more directly supports investment in strategic technologies.
India’s ability to attract such investment is limited by the absence of targeted incentives, especially when many competing jurisdictions offer substantial credits, super deductions and innovation linked allowances that reduce the cost of building advanced technology and R&D capacity. India has progressed, but the available incentives remain modest.
To strengthen its industrial position, tax policy should pivot toward investment acceleration, deeper innovation and boost competitiveness in green energy. Allowing full expensing or accelerated depreciation for eligible technology and equipment would help, along with more flexible loss carry forward provisions that could allow entities to access these benefits even through periods of early stage investment or market cycles.
Another area that requires attention is the tax treatment of asset light acquisitions. In deals where value is driven by strategic teams, know how or other intangibles, there is uncertainty on the manner and permissibility around amortisation rules, and clearer guidance would create far more predictable outcomes for strategic tech transactions.
Another area worth reviewing is the patent box regime. India’s current structure offers a concessional tax rate on royalty from patents developed and registered domestically, but its scope is narrow and excludes many forms of modern technology driven IP, which limits its usefulness.
Our booming capital markets and rich valuation offers a strategic edge to allow Indian Companies to buy assets overseas. India is also blessed with the deepest talent pool in the strategic technologies space. What is therefore needed is a well thought out and wholistic long term plan to make deep in roads in the strategic technologies space both on the innovation and R&D as well as the manufacturing front.
This will however need India to be nimble and strategic on many fronts from securing long term supplies of rare earth materials to flexibility in forging JVs including with Chinese companies to allowing big bold acquisitions.
Budget 2026 provides a window to bring some of these structural changes by backing emerging sectors with targeted incentives and bringing in changes to the tax and regulatory framework to keep pace with global innovation hubs.
