Union Budget 2026-27 Unveils Comprehensive Tech Strategy
Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 in Parliament on February 1, 2026, outlining a robust push to scale up manufacturing across seven strategic sectors, with a particular emphasis on technology and artificial intelligence. The budget arrives amid global economic realignment, where trade wars, supply-chain fragmentation, and geopolitical conflicts challenge decades of globalization. India aims to counter these headwinds by strengthening domestic resilience, especially in the technology sector, through a series of ambitious proposals.
Semiconductor Mission 2.0 with Rs 8,000-Crore Outlay
In her budget speech, Sitharaman announced the launch of Semiconductor Mission 2.0, building on the earlier India Semiconductor Mission (ISM) 1.0. This new iteration focuses on producing equipment and materials, designing full-stack Indian intellectual property, and fortifying supply chains. The government will also prioritize industry-led research and training centers to develop technology and a skilled workforce.
The national semiconductor strategy extends beyond fabs and ATMP units, introducing a design-linked incentive scheme with a Rs 100-crore outlay to support at least 30 semiconductor design companies in India. Additionally, ISM 2.0 allocates Rs 5,000 crore in fiscal support for setting up semiconductor fabs to manufacture compound semiconductors, discrete semiconductors, ATMP units, silicon photonics, and sensors. Project costs for establishing these fabs will be covered up to Rs 2,000 crore under the scheme.
Expanded Electronics Components Manufacturing Scheme
The Electronics Components Manufacturing Scheme, launched in April 2025 with an initial outlay of ₹22,919 crore, has already attracted investment commitments double its target. To capitalize on this momentum, the government proposes to increase the outlay to ₹40,000 crore. This scheme targets components such as display modules, sub-assembly camera modules, printed circuit board assemblies, lithium cell enclosures, resistors, capacitors, and ferrites, which are essential for gadgets like smartphones, laptops, and household appliances.
Unlike earlier production-linked incentive schemes, this initiative offers subsidies through a different mechanism, supporting manufacturing across all layers of electronics production and positioning the sector as a key growth driver for the Indian economy.
Rare Earth Corridors in Coastal States
The budget proposes establishing dedicated rare earth corridors in the mineral-rich coastal states of Odisha, Kerala, Tamil Nadu, and Andhra Pradesh. These corridors will promote mining, processing, research, and manufacturing of heavy rare earth elements, which are crucial for advanced technologies like electric vehicles, next-generation fighter jets, robots, and AI infrastructure such as semiconductors and data center hardware.
India holds the world's third-largest reserves of rare earths, with 6.9 million tons, but currently mines only a fraction due to limited private investment. This initiative aims to unlock this potential and reduce dependency on imports.
Tax Holiday for Cloud Services Companies
To boost investment in data centers, the Centre has proposed a tax holiday until 2047 for foreign companies providing cloud services globally using data center services from India. However, these companies must serve Indian customers through an Indian reseller entity. The budget also includes a safe harbor provision of 15 percent on cost if the data center service provider is a related entity.
This announcement comes as India adopts a bottom-up approach to AI development, despite entering the global AI race later than others. The Economic Survey 2026-27 highlights structural challenges, noting that India's access to cutting-edge compute infrastructure remains limited, with only 3 percent of global data centers located in the country.
New Multilingual AI Tool for Farmers
The government plans to launch a multilingual AI tool called Bharat-VISTAAR, which will integrate with Agri-Stack portals and best practices outlined by the Indian Council of Agricultural Research. This tool aims to enhance farm productivity, enable better decision-making for farmers, and reduce risks by providing customized advisory support.
Agri-Stack, managed by the Ministry of Agriculture, includes a national registry of farmers and farm plots linked to crop and soil data, accessible to government agencies and approved private players like agritech companies and credit providers.
Content Creator Labs in Educational Institutions
Under an initiative led by the Indian Institute of Creative Technologies in Mumbai, the government proposes to set up dedicated Animation, Visual Effects, Gaming, and Comics content creator labs in over 15,000 secondary schools and 500 colleges across India. This move addresses the projected demand for two million professionals in the AVGC sector by 2030.
Other Key Tech and AI Announcements
- National Destination Digital Knowledge Grid: This initiative will digitally document all culturally, spiritually, and heritage-significant places, creating job opportunities for local researchers, historians, content creators, and technology partners.
- Non-Intrusive Scanning of Containers Using AI: Advanced AI-powered imaging tools will be rolled out in phases to scan every major container across all major ports in the country. The government is also developing a single, integrated platform called Customs Integrated System, expected to launch within two years.
- BCD Exemption for Li-Ion Battery Storage Systems: The budget proposes to exempt capital goods used for manufacturing Lithium-Ion cells for battery energy storage systems from basic customs duty, along with abolishing BCD on imports of sodium antimonate for solar glass manufacturing.
These comprehensive measures underscore the government's commitment to positioning India as a global leader in technology and innovation, driving economic growth and self-reliance in critical sectors.
