By Rajesh Dangi
India’s Union Budget for 2026 has been welcomed by the technology and infrastructure sectors with clear optimism. Its headline measure, a long term tax holiday for data centers alongside strong incentives for foreign investment, signals a decisive push to position India as a global hub for digital infrastructure. The logic is compelling. Expanding domestic data capacity can attract capital, create jobs, strengthen connectivity, and support the rapid growth of AI, cloud services, and digital platforms. As a foundation for the digital economy, this infrastructure drive is both timely and strategically sound.
At the same time, the budget highlights a deeper policy tension. While India is accelerating the construction of digital infrastructure, the underlying technologies that power these facilities, from chips to core software platforms, still largely originate abroad. This does not diminish the value of the current push, but it does raise an important long term question: can infrastructure leadership translate into technological self-reliance, or will India remain primarily a host for globally designed systems?
The Semiconductor Gap
India’s dependence on imported semiconductors remains one of its most significant strategic vulnerabilities. Chips are embedded in everything from consumer electronics to defence systems and industrial automation. Although the India Semiconductor Mission has laid important groundwork, this budget did not outline a bold next phase that would accelerate domestic design capabilities or strengthen India’s position in emerging architectures such as RISC V.
There is an opportunity here. Open and modular chip design ecosystems could allow Indian firms, startups, and research institutions to build specialized processors for sectors like agriculture, health care, and energy management without being locked into expensive proprietary pathways. Even as data center capacity expands, much of the value embedded in the hardware stack will continue to flow outward unless design and intellectual property creation are nurtured at home.
Software Strength and Software Dependence
India’s global reputation as an IT services powerhouse is well earned. Yet much of the country’s critical digital infrastructure, from banking systems to government platforms, runs on foreign operating systems, databases, and enterprise software. This is not unusual in a globalized industry, but it does create exposure to licensing shifts, geopolitical pressures, and supply chain constraints.
A national push toward robust, secure, and scalable open source software stacks could gradually reduce this dependence while also creating exportable intellectual property. Linking public cloud and data center incentives with support for such indigenous or community driven platforms may have created a stronger bridge between infrastructure expansion and software sovereignty. For now, the budget reinforces capacity more than control.
The Untapped Power of Public Procurement
Governments often shape markets not only through subsidies and tax policy, but through what they choose to buy. India’s space and defence sectors grew in part because public demand created reliable pathways for domestic industry to scale and mature. In digital technology, a similar approach could support homegrown products in cybersecurity, enterprise platforms, and specialized hardware.
This budget did not introduce a major procurement mandate favouring certified domestic technologies, which means Indian startups and MSMEs will continue competing directly with established global players from day one. While open competition drives quality, targeted demand side support could help local firms cross the difficult early stage from prototype to scale.
Talent as the True Infrastructure
Physical infrastructure is visible and measurable. Human capital is slower to build but ultimately more decisive. India produces large numbers of engineers, yet there is a shortage of deep specialists in areas such as semiconductor physics, advanced cryptography, and AI safety and governance. These are precisely the domains that underpin technological sovereignty.
A large scale national fellowship or mission focused on frontier research and advanced technical training could complement the infrastructure investments now underway. Without a parallel push on high end skills, India risks operating world class facilities without fully owning the knowledge layers that define next generation innovation.
Financing Innovation, Not Just Assets
The financial instruments emphasized in the budget are well suited to capital intensive, asset heavy projects like data centers, which offer relatively predictable returns. Deep technology research in fields such as quantum computing, advanced materials, or next generation communications is different. It is higher risk, longer term, and often unattractive to traditional venture capital.
A sovereign technology fund or expanded incentives for private R and D in strategic sectors could help fill this gap. Infrastructure strengthens today’s digital economy; patient innovation capital shapes tomorrow’s.
A Strong Step, but Not the Full Journey
None of this detracts from the significance of what the 2026 budget achieves. Expanding India’s data infrastructure is essential for economic growth, digital inclusion, and global competitiveness. It enhances the country’s role in the global digital supply chain and supports the rise of AI driven services.
But infrastructure is only one pillar of digital power. True technological self determination rests on an integrated ecosystem that includes domestic chip design, trusted software platforms, advanced research talent, supportive public demand, and patient risk capital. The current budget makes a forceful move on one front while leaving others for future policy cycles.
As India approaches the centenary of its independence in 2047, the ambition is likely to evolve from being a major destination for the world’s data to being a source of the world’s next wave of technology. The foundation is being poured today. The next challenge will be ensuring that the intellectual property, platforms, and talent that run on top of that foundation increasingly carry a Made in India imprint. What say?