Union Budget 2026: A Strategic Push for AI and Semiconductors

A New Chapter for Indian Technology

Finance Minister Nirmala Sitharaman presented the Union Budget 2026, outlining a strategic financial plan that places significant emphasis on technology, manufacturing, and digital infrastructure. The budget signals a clear intent to move India from an assembly-led economy to one focused on deep value addition in critical sectors like electronics, semiconductors, and artificial intelligence. The announcements are designed to build a self-reliant ecosystem, reduce import dependency, and position India as a key player in the global technology supply chain.

Key Allocations and Policy Directives

The budget introduced several targeted financial measures to accelerate growth in the technology sector. A key highlight is the near-doubling of the allocation for the Electronic Component Manufacturing Scheme (ECMS) to ₹40,000 crore, a substantial increase from its previous outlay of ₹22,919 crore. This move is aimed directly at strengthening the domestic production of essential electronic components. Additionally, the government announced the launch of the second phase of the India Semiconductor Mission (ISM 2.0), building on the initial ₹76,000 crore fund which is now nearly exhausted. Support for small and medium enterprises was also reinforced with a ₹4,000 crore top-up to the Self-Reliant India Fund.

Deepening Electronics Manufacturing

The substantial increase in the ECMS outlay marks a strategic pivot from final product assembly to fostering a robust domestic component base. For years, India's electronics industry has been heavily reliant on imported components like printed circuit boards (PCBs), capacitors, and display modules. This dependency created supply chain vulnerabilities and limited value addition within the country. By incentivizing local component manufacturing, the budget aims to create a more resilient and competitive electronics sector. The market responded positively to this long-term vision, with shares of electronics manufacturing service (EMS) companies like Dixon Technologies and Kaynes Technology seeing gains following the announcement.

The Next Phase: India Semiconductor Mission 2.0

With the initial funds for the India Semiconductor Mission largely committed, ISM 2.0 shifts the focus from simply attracting fabrication plants to cultivating a comprehensive semiconductor ecosystem. The new phase will emphasize the production of semiconductor manufacturing equipment, raw materials, and the development of indigenous design capabilities. This holistic approach is critical for long-term self-reliance in a sector dominated by a few global players. Industry bodies have welcomed the continuity, stressing that predictability and timely execution are as crucial as financial incentives for attracting global investment in this capital-intensive field.

India's AI Strategy: Shaping Demand, Not Owning Compute

The budget also addresses the global AI race, but with a pragmatic approach. Instead of attempting to compete with Big Tech giants in owning massive computing infrastructure, the government's strategy focuses on shaping demand and enabling access for Indian innovators. The IndiaAI Mission, with its $1.2 billion budget, has deployed 38,000 GPUs—a fraction of the 1.3 million operated by a single company like Meta. Recognizing this disparity, the policy direction favors renting compute power for startups and researchers and using public procurement to drive adoption of domestic AI solutions. This approach avoids the high costs and rapid obsolescence of hardware, a lesson learned from the underutilization of public high-performance computing facilities in the past.

The Data Center Dilemma: Powering the AI Revolution

As AI adoption grows, so does the demand for data centers, which are now considered core national infrastructure. However, these facilities are incredibly power-intensive. Power and electrical infrastructure can account for up to 45% of a data center's capital expenditure, with cooling adding another 20%. The tech industry expects the government to introduce supportive policies, such as incentives for using renewable energy and adopting energy-efficient cooling technologies. Ensuring a stable and affordable power supply is essential for the sustainable growth of India's digital economy.

Industry Voices and Expectations

Leaders across the technology sector have outlined their expectations, emphasizing the need for stable, long-term policies. Former Tech Mahindra CEO CP Gurnani highlighted India's potential to create affordable, human-centric AI that solves local challenges. The semiconductor industry, represented by IESA President Ashok Chandak, called for execution certainty and simplified fund disbursement. In telecom, there is a push for innovation-linked incentives to promote R&D in 6G and other emerging technologies. For startups, the key demands revolve around the simplification of tax laws, particularly angel tax, and better access to government procurement.

A Strategic Blueprint for a Tech-Driven Economy

The Union Budget 2026 is more than a set of financial allocations; it is a strategic blueprint for India's technological future. The focus on building domestic capabilities in components, semiconductors, and AI reflects a long-term vision for a self-reliant and globally competitive nation. The success of these initiatives will now depend on effective and timely execution, ensuring that the allocated funds translate into tangible growth and innovation on the ground. The government's role is shifting from being a direct participant to an enabler, creating a conducive environment for private enterprise to lead India's technology transformation.