Union Budget 2026 Expectations: Building India’s AI Powerhouse, Reforming Taxes, and Competing for Global Tech Investment

Union Budget 2026 Expectations: Building India’s AI Powerhouse, Reforming Taxes, and Competing for Global Tech Investment

By early January 2026, the noise around the Union Budget (FY 2026–27) has already started sounding less like a once-a-year ritual and more like a race to define what India wants to be next: not just a big market for technology, but a serious home for the full stack—chips, cloud, compute, models, products, exports, and the jobs that come with them. With the Budget expected on February 1, 2026, the mood across boardrooms and startup floors is a blend of impatience and ambition: impatience because global capital moves fast, and ambition because the next wave of tech and manufacturing is being re-shored, “friend-shored,” and re-architected in real time.

A useful clue to how widely the government wants this conversation to run is the formal invitation to citizens to send suggestions for Union Budget 2026–27 through MyGov—positioning the Budget not just as an accounting exercise, but as a participatory blueprint. That backdrop matters, because the loudest expectations this year are not about a single giveaway or one-line announcement. They’re about building “boring” but powerful policy plumbing—tax certainty, tariff simplification, faster incentive payouts, easier compliance, and investable long-term signals—so that India becomes the default choice when global companies decide where to build their next data centre region, chip supply chain node, or global capability centre.

The clearest headline expectation forming around Budget 2026–27 is a push for a mega AI-and-data-centres boost, framed very explicitly as a bid to attract global tech giants to build in India rather than merely sell in India. In industry conversations reported this week, the ask isn’t only for more spending—it’s for a structure that makes large AI infrastructure projects financially and operationally viable. That includes a conditional tax holiday for some data-centre developers, with eligibility linked to measurable outcomes like capacity thresholds, employment creation, and green-energy targets; customs duty waivers on critical imported equipment for an initial window; and input tax credit refunds on capital assets procured for data centres. The subtext is simple: if India wants the AI boom to land here, the country needs to make compute cheaper to build, faster to scale, and less risky to finance.

What makes this AI narrative more than a wishlist is that it’s being anchored to real capital commitments and an existing national mission architecture. Recent reported pledges—such as Microsoft and Amazon committing over $50 billion toward India’s cloud and AI infrastructure—and the earlier cited investments like Google’s planned $15 billion AI hub (data centre and fibre network) in Andhra Pradesh, are being treated as proof of demand, not hype. And on the policy side, India already has the IndiaAI Mission (₹10,372 crore) with a multi-pillar plan spanning GPUs and foundational models, which creates a natural platform for the Budget to layer in execution-oriented incentives rather than invent a new scheme from scratch. One particularly practical idea floating in the ecosystem is to reward time-bound, phased GPU procurement—essentially nudging companies to commit to a procurement ramp and then backing that commitment with fiscal incentives like import-duty benefits—while also lowering barriers that currently keep smaller players out of serious compute access.

If AI is the magnet, semiconductors and electronics are the anchor—because no country is going to be a long-term AI powerhouse without control over key parts of the hardware and manufacturing stack. Here, the message from the chip and electronics ecosystem is almost blunt: incentives are good, but speed and certainty are better. The India Electronics and Semiconductor Association has emphasized timely disbursement of committed incentives, higher budgetary allocation for already-approved projects, and “execution certainty” for fabs and OSAT facilities—because these projects are capital-intensive, long-gestation builds where cash-flow timing can decide whether a plant ramps on schedule or slips by quarters.

Alongside payouts, the sector is pressing for tax and export policy to reward depth, not just volume. One notable expectation is to modify the 15% concessional manufacturing tax regime so that it explicitly covers semiconductor fabs, electronics components, and advanced manufacturing units—and to extend the eligibility window further so that it matches the multi-year reality of fab timelines. On exports, there’s a strong push to link incentives to value addition in India, not merely shipment volumes, and to tighten localisation incentives by connecting PLI benefits to higher domestic value addition and the use of Made-in-India components and semiconductors. If Budget 2026–27 follows that logic, it would be signalling that India’s goal is not to become the world’s final assembly line, but to climb the margin ladder—design, components, tooling, testing, certification, and IP.

That last piece—testing, certification, and ecosystem gaps—sounds unglamorous, but it’s exactly where manufacturing ambitions often stall. The industry has specifically called for simpler testing and certification frameworks, expansion of government-supported testing centres, and lower testing/certification fees (especially for startups and MSMEs), plus integrated semiconductor and electronics parks with plug-and-play infrastructure so projects can move from approval to build to production faster. In narrative terms, this is India trying to remove the friction that makes “Make in India” expensive in practice even when it looks attractive in principle.

Running underneath both the AI and manufacturing story is a third theme that seems designed to reduce policy noise: tax and tariff simplification. On the indirect tax side, India is reportedly considering cutting the number of customs duty slabs from eight to around five or six to simplify the tariff structure, reduce disputes and litigation, and align import duties more coherently with industrial and trade priorities. This matters for everything from data-centre equipment to electronics components because tariff complexity doesn’t just add cost—it adds unpredictability, and unpredictability raises the cost of capital. If Budget 2026–27 uses tariff rationalisation as a competitiveness tool, it would complement the larger push to attract global supply chains and boost exports with fewer avoidable frictions at the border.

On the direct tax side, expectations are shaped by a transition moment. The new Income Tax Act, 2025 is scheduled to come into force from April 1, 2026, and at least some tax experts are arguing the Budget should avoid last-minute substantive rewrites and instead focus on improving tax administration and dispute resolution. In plain language: businesses and taxpayers may value a year of stability and cleaner implementation more than a surprise set of changes, especially if the government wants to be seen as predictable to global investors weighing multi-decade bets in fabs and cloud regions.

That desire for predictability shows up loudly in industry commentary too. Reports capturing pre-budget views from large industry bodies and professional-services firms emphasise “tax certainty” and long-horizon incentives over short-term populist moves, including calls to revive or extend the concessional 15% corporate tax regime for new manufacturing units (Section 115BAB) that had expired earlier—positioning it as a lever to pull global manufacturers into India. Whether or not the government adopts that exact ask, the intent is clear: industry wants the Budget to feel like a contract—stable enough that a CFO can model a 10–15 year investment plan without building in fear of sudden rule changes.

And then there’s the exports lens, which quietly ties everything together. When economists and experts ask for targeted support for data centres, AI, and robotics, the logic isn’t only domestic innovation—it’s also about moving India’s services exports toward higher-value digital offerings and making the economy more resilient to global trade volatility. Put differently, “AI investment” in Budget 2026–27 isn’t being pitched as a fashionable line item; it’s being pitched as a strategy for export competitiveness—of software, digital services, embedded systems, engineering, and the next generation of product companies that can sell globally.

If you zoom out, the expectations for Union Budget 2026–27 start to read like one continuous story: make it easier and cheaper to build compute at scale; make manufacturing incentives faster, deeper, and more value-addition oriented; reduce tariff and tax complexity that quietly punishes investment; and keep the direct-tax environment stable while a new tax law goes live. It’s not a demand for one “big bang” announcement as much as a demand for a clean runway—so that when global tech giants and industrial majors look for their next location, India doesn’t just compete on market size, but on execution certainty.