Union Budget 2026: India’s Strategic Roadmap for AI and Digital Infrastructure

The Union Budget 2026 has set a clear direction for India's next phase of growth by placing artificial intelligence and digital infrastructure at the center of the national economic agenda. Finance Minister Nirmala Sitharaman, presenting her ninth budget, outlined a vision where technology serves as the primary driver for a productive and competitive economy. Industry leaders have largely welcomed the move, noting that the government has signaled a long-term commitment to building a technology-led nation.

By prioritizing AI and digital services, the government aims to transition from Digital Public Infrastructure to AI Public Infrastructure. This shift is expected to underpin public services, enterprise innovation, and long-term global competitiveness. The budget focuses on creating a resilient digital backbone that can support the massive compute requirements of modern generative AI and cloud-based services.

The 2047 Tax Holiday: Incentivizing Global Cloud Hubs

One of the most significant announcements in the Union Budget 2026 is the proposal for a long-term tax holiday for foreign cloud service providers. The Finance Minister proposed to provide a tax holiday until 2047 to any foreign company that provides cloud services to global customers using data center services located in India. This move is designed to attract global business and investment into India's burgeoning data center sector.

To qualify for this incentive, foreign companies must serve their Indian customers through a local reseller entity. This policy seeks to turn India into a global export hub for cloud computing, ensuring that the country is not just a consumer of global tech but a thriving base for the world's digital backbone. Industry experts believe this could catalyze large-scale global investment similar to the IT services boom in the early 2000s.

Microsoft’s Landmark 17.5 Billion Dollar Investment

Microsoft has responded to India's digital push with its largest-ever investment in the country. The company announced a 17.5 billion dollar investment over four years, spanning from 2026 to 2029. This capital is earmarked for expanding hyperscale cloud and AI infrastructure, including the launch of new data center regions. This builds upon a previous 3 billion dollar commitment announced in early 2025.

A key milestone in this expansion is the Hyderabad data center region, which is expected to go live by June 2026. This facility will be one of the largest in the region, adding to Microsoft’s existing hubs in Mumbai, Pune, and Chennai. The investment also includes a massive skilling initiative, with Microsoft aiming to train 20 million Indians in AI skills by 2030, reflecting the growing demand for specialized tech talent.

Safe Harbor Reforms: Enhancing IT Sector Predictability

The budget introduced critical reforms in transfer pricing to boost the competitiveness of the IT services sector. The government has proposed increasing the safe harbor turnover threshold for IT services from 300 crore to 2,000 crore. Additionally, a uniform 15.5 percent margin has been established, providing much-needed clarity and predictability for multinational corporations operating in India.

Furthermore, a safe harbor of 15 percent on cost has been proposed for cases where a company providing data center services from India is a related entity. These measures are expected to reduce litigation and ease compliance obligations for global technology firms. Industry bodies like Nasscom have praised these changes, noting that they address long-standing requests from the technology industry.

Strengthening the Semiconductor Ecosystem with ISM 2.0

The government is also sharpening its focus on the semiconductor and electronics manufacturing sectors. The Finance Minister confirmed that the Indian Semiconductor Mission (ISM) 2.0 will be rolled out soon. This second phase aims to build a local semiconductor ecosystem by supporting domestic equipment, materials, design, and supply-chain capabilities.

While the specific budgetary outlay for ISM 2.0 was not disclosed, the intent is to make India self-reliant in advanced chips. This initiative is coupled with the strategic decision to establish dedicated rare earth corridors across mineral-rich states to strengthen the processing and manufacturing of critical minerals. These steps are vital for high-tech growth in sectors ranging from defense to clean energy.

AI in Agriculture: The Bharat Vistaar Initiative

Artificial intelligence is being positioned as a horizontal enabler across various sectors, including agriculture. The government proposed the launch of Bharat Vistaar, a multilingual AI tool designed to foster risk reduction for farmers. This initiative reflects a push toward tech-enabled solutions to strengthen productivity and resilience in the agricultural sector.

By offering customized advisory support and utilizing real-time data from satellites, Bharat Vistaar will help farmers make informed decisions regarding farm productivity and produce mix. This focus on assessing the impact of emerging technologies on traditional sectors reinforces the government's goal of inclusive national progress through rapid tech advancement.

Summary of Key Budgetary Announcements

Major Tech Investment Commitments in India

Market Impact and Long-Term Outlook

The focus on digital infrastructure is expected to have a multiplier effect on the Indian economy. With investments worth nearly 70 billion dollars already flowing into the AI infrastructure layer, the potential for growth is immense. The budget's emphasis on data centers as strategic national infrastructure provides the policy certainty required for long-term capital expenditure.

Analysts suggest that these measures will position India as a preferred global hub for secure and compliant cloud services. The reduction in dependence on offshore data storage and the push for data sovereignty are expected to strengthen the foundation of trust for global enterprises. As AI adoption accelerates, the demand for resilient compute capacity will continue to drive the growth of the technology sector.

Conclusion: Building the Physical Layer of AI

The Union Budget 2026 signals a strategic shift from focusing solely on software and services to building the foundational physical layer of the digital economy. By incentivizing data centers, semiconductors, and AI-driven solutions, India is preparing to compete on the global stage as a technology powerhouse. The success of these initiatives will depend on effective execution and the ability to address structural challenges such as power reliability and regulatory bottlenecks. However, the clear policy direction and massive investment commitments suggest that India is well on its way to becoming a global leader in the AI era.