Union Budget 2026: A strategic push on AI, semiconductors, and data infrastructure

The article was first published in The Economic Times Online on February 03 2026. Please click here to read the article.

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman on Sunday, characterises cutting-edge technologies as vital “force multipliers” designed to fulfil the aspirations of a youthful India. By transitioning from foundational missions toward an application-oriented and infrastructure-led roadmap, the government is signalling a shift toward a private-led innovation cycle aimed at securing technological sovereignty.

The evolution of the India Semiconductor Mission (ISM) 2.0

A cornerstone of this Budget is the launch of ISM 2.0, which moves beyond initial assembly to focus on the high-value segments of the global value chain, including the production of equipment, materials, and the creation of “full-stack Indian Intellectual Property”. This strategic pivot is reinforced by a massive increase in the Electronic Component Scheme outlay to Rs 40,000 crore, reflecting a clear inference that the government seeks to own the physical layer of the digital economy. By incentivising the domestic manufacturing of hardware and critical minerals, India is positioning itself to insulate its AI and data industries from volatile global supply chain disruptions.

Cloud sovereignty and the 2047 data centre roadmap

To catalyse massive capital investment in digital infrastructure, the Budget proposes a landmark tax holiday until 2047 for foreign companies providing global cloud services, provided they utilise Indian data centres and local resellers. This 21-year period of fiscal certainty, paired with safe harbour provisions for domestic data centre providers, implies an aggressive “Data-in-India” mandate. The underlying intent is to transform India into a global data hub, where localising international data traffic creates a synergistic growth cycle for the domestic power, real estate, and fibre optic sectors.

AI as a utility: From LLMs to “Bharat-VISTAAR”

The government is shifting the AI narrative from general large language models toward functional, high-impact applications. The launch of Bharat-VISTAAR-a multilingual AI tool that integrates Agri-Stack and ICAR data for realtime farmer advisory-serves as a primary example of “Social AI”. Similarly, the Budget’s emphasis on emerging technologies to support the Divyangjan community infers that the government views AI as a tool for radical inclusivity. This transition suggests that the next phase of India’s technological mission will prioritise datasets and domestic infrastructure that solve specific socio-economic challenges.

The workforce synergy: Auditing the human-AI interface

Acknowledging that AI is a disruptive force in the service-led economy, the Budget establishes a High-Powered Standing Committee on Education to Employment. This committee is specifically tasked with auditing the impact of AI on jobs and recommending measures to align technical training with the digital economy. This proactive stance implies an admission that traditional service roles are evolving rapidly; by auditing these shifts now, the government aims to ensure that “Yuva Shakti” is equipped to leverage AI as a tool for productivity rather than being sidelined by automation.

Impact on India Inc.

For the private sector, the Budget signals a definitive shift toward a private-led AI infrastructure cycle. By securing the hardware layer through ISM 2.0, the storage layer through Cloud incentives, and the application layer through projects like the Digital Knowledge Grid, the government is creating a self-sustaining digital flywheel. The strategic takeaway for India Inc. is that future competitiveness will no longer depend solely on labour arbitrage but on the successful integration of AI-driven efficiencies and domestic IP creation within a secure, localised digital ecosystem.