OPINION | Budget 2026 must focus on innovation and deep-tech to drive growth

A significant portion of this corpus has been set aside for strategic deep-tech sectors.

As India stands at the cusp of the Union Budget 2026–27, the economic narrative is shifting from “recovery” to “resilient acceleration”. While the traditional engines of Gross State Domestic Product (GSDP)—infrastructure, government spending, and consumption—continue to provide a sturdy base, the next frontier of India’s 8% GDP growth trajectory lies in the high-stakes world of innovation and deep technology. I believe Budget 2026 must be the catalyst that transforms India from a “service hub” into a “global IP powerhouse”.

The RDI Fund: From allocation to execution

In the previous budget, Finance Minister Nirmala Sitharaman took a historic step by operationalising the ₹1 lakh crore Research, Development, and Innovation (RDI) Fund under the Anusandhan National Research Foundation (ANRF). The Ministry’s intent was clear: science- and technology-led growth must power India’s rise. Over the past year at haf.vc, I have observed a 30% increase in deep-tech pitches in just the last six months, focused on building the future of India.

However, a significant portion of this corpus has been set aside for strategic deep-tech sectors. For Budget 2026, the mandate must be to accelerate the deployment of these funds. It has also been noted recently that 2026 will be a defining year for founders who can manage growth effectively through innovation. I expect the Finance Ministry to introduce more “Second-Level Fund Managers” (SLFMs) to ensure that the ₹20,000 crore annual tranches reach early-stage start-ups in AI, quantum computing, and semiconductors.

Beyond infrastructure: the climate-tech imperative

While industry continues to focus heavily on infrastructure, the real risk to GDP growth is not a lack of roads, but a shortage of indigenous patents. The government’s emphasis on capital expenditure has strengthened physical infrastructure such as roads and railways; however, the quality of investment must now pivot towards climate technology to future-proof growth.

Budget 2026 should incentivise private equity flows into circular economy models and green hydrogen. By reinforcing the Ministry’s earlier commitment to “Atmanirbharta in energy”, the upcoming budget can unlock private investment through targeted tax credits for climate-tech R&D, distinct from traditional manufacturing incentives.

Navigating global headwinds: the FTA strategy

Some of our past investments have struggled amid global tariff headwinds, particularly in electronics and textiles. The current geopolitical climate has exposed the vulnerability of Indian exporters. With the rupee experiencing volatility through much of 2025, Budget 2026 must provide a fiscal cushion to enhance “cross-border resilience”.

The Finance Ministry’s recent stance has leaned towards strategic trade realignment. I expect this budget to:

* Accelerate FTA integration: Increase allocations to the Department of Commerce to finalise high-quality FTAs with partners such as the UK, New Zealand, the EU, and Oman, reducing over-dependence on any single Western economy.

* Mitigate rupee volatility: Introduce measures to encourage the internationalisation of the rupee, lowering transaction costs for MSMEs engaged in cross-border trade and enabling them to scale globally under the “Brand India” banner.

* Tilt the balance of trade: Extend Productivity Linked Incentive (PLI) schemes to MSMEs with annual revenues of ₹100 crore and above, moving beyond assembly towards core component manufacturing and directly addressing the trade deficit.

Consumption: the resilient anchor

Despite global headwinds, India’s Private Final Consumption Expenditure (PFCE) has remained a pillar of strength. The Finance Ministry has previously highlighted “uplifting household sentiment” as a core objective.

For consumption to drive GSDP sustainably, however, it must be powered by rising disposable incomes rather than expanding credit. I expect Budget 2026 to prioritise rural demand recovery, ensuring that the consumption engine is fuelled by productivity gains and local manufacturing, supported by innovation in agriculture.

The role of innovation in boosting GDP

Over the past 15 years, India’s innovation and start-up ecosystem has evolved from comfort-driven solutions to convenience-led platforms. As Dr Jitendra Singh recently noted, “India is no longer the India of yesterday; our aspiration is to lead the technologies of the future.”

With over 170,000 start-ups, innovation is central to achieving the “Viksit Bharat” vision. Innovation-led growth has a multiplier effect on GDP that traditional sectors often lack. When a deep-tech start-up in Hyderabad secures a global patent in health-tech or space-tech, it creates high-value jobs and attracts long-term, sticky foreign direct investment.

Budget 2026 must continue the momentum of decriminalising minor procedural lapses and simplifying the regulatory framework for Alternative Investment Funds (AIFs). At a time when consumption-led growth is reaching an inflection point, regulatory friction risks slowing the investment cycle that is critical for sustained expansion.

Conclusion: the roadmap for 2026

The synergy between government spending, private consumption, and infrastructure has propelled India into the global top five economies. To advance into the top three, Budget 2026 must focus on deepening the RDI pool, scaling climate-tech incentives, diversifying trade through FTAs to shield Indian innovation from global tariff conflicts, and boosting domestic productivity by incentivising the “component creator” over the “assembler”.

I see 2026 as the year when capital meets curiosity. If the upcoming budget can bridge the gap between R&D laboratories and global markets, India’s investment-led growth will become a lasting legacy—not merely a statistic.

(Rathnakar Samavedam, Investment Director and Managing Partner at Hyderabad Angels Fund).

Views are personal, and do not represent the stand of this publication.