OPINION | Budget 2026 signals India’s shift to strategic, tech-led growth 

The measures announced in this year's Budget could shift India onto technologically empowered growth path.

Budget 2026, presented by Finance Minister Nirmala Sitharaman, marks a decisive reset of India’s economic architecture. Embedded within its Yuva Shakti-driven vision is a clear policy pivot: moving from incremental reforms to building long-term strategic capability in digital infrastructure, manufacturing, and semiconductors. These measures are not discrete incentives but components of a broader effort to enhance strategic autonomy, attract sustained global investment, and expand industrial depth.

A cornerstone of this ambition is the new IncomeTax Act, set to take effect on April 1, 2026. By subsuming all proposed direct tax changes into a fresh legislative framework, the government signals intent to modernize India’s tax architecture for clarity, predictability, and reduced disputes. This structural reset provides the backdrop for the sectoral measures that follow.

Importance of tax holiday for data centres

One of the most consequential announcements is the tax holiday until 2047 for foreign cloud providers establishing

data centres in India. Linked to conditions such as routing global workloads through India and using local resellers for domestic customers, the incentive aims to realign the geography of global cloud operations. With India generating massive data volumes yet holding a small share of global processing capacity, the policy directly targets this imbalance.

The Digital Personal Data Protection Act’s contains enabling provisions on restricting crossborder data to certain jurisdictions. If enacted, this would promote creation of data centre infrastructure in India. Interestingly, this possible development further strengthens the logic of this enactment as data currently stored overseas may need to be mirrored or migrated to India, driving demand for domestic infrastructure.

The Digital Personal Data Protection Act contains key provisions that empower authorities to restrict cross-border data flows to specific jurisdictions. Should these provisions be implemented, they would serve as a significant catalyst for the development of data centre infrastructure within India. By regulating where personal data can be stored and processed, the Act aims to ensure that sensitive information remains protected under Indian law.

This potential regulatory change further reinforces the rationale behind the Act. As a direct consequence, data that is currently housed in overseas locations may be required to be mirrored or relocated to India. Such regulatory requirements would naturally stimulate greater demand for domestic data centre facilities, encouraging both Indian and foreign providers to invest in local infrastructure.

The long-dated exemption sharply reduces the effective cost of building hyperscale facilities, positioning India as an alternative to markets like Singapore and the US. The tradeoff is clear: foregone taxes today for foundational digital infrastructure tomorrow.

Boost for SEZs

The Budget also reinvigorates India’s Special Economic Zones, which have struggled with underutilisation due to rigid duty rules. By moving to align SEZ import declaration norms with the MOOWR framework levying duty only on raw materials used for domestic sales the government acknowledges longstanding industry concerns and seeks to remove friction between export and domestic production.

Even as a onetime measure for DTA sales, duty rationalisation would make SEZs more competitive for domestic supply, especially for sectors hit by global tariffs and supplychain disruptions. Electronics, pharmaceuticals, and automotive component manufacturers stand to benefit immediately through reduced duty incidence and improved capacity utilisation. Over time, the reform could revive stalled investments and expand India’s manufacturing base. The fiscal cost lower nearterm customs revenue must be weighed against the potential for increased scale and activity.

Doubling down on semiconductors

The semiconductor sector has received one of its most decisive boosts yet. With an expanded Electronics Component Manufacturing Scheme and the launch of India Semiconductor Mission 2.0 (ISM 2.0) supported by a ₹40,000 crore allocation, the Budget positions semiconductors as a national priority. The initiatives emphasise strengthening domestic IP, enabling industry-led R&D, and investing in advanced training to build a specialised workforce.

The new funding cycle aims to address structural gaps that have previously limited India’s semiconductor aspirations, specifically the cost-intensive nature of fabs and OSAT units, the need for long-term fiscal support, and uncertainty around incentive disbursement. By underlining domestic IP creation and technology ownership, the policy attempts to move India up the global value chain from design services to product ownership. If executed effectively, ISM 2.0 could draw global majors seeking diversified supply chains beyond East Asia. Yet, the sector remains sensitive to policy clarity, depreciation rules, customs frameworks for specialized equipment, and speed of project approvals. Execution risks remain high, but so do the potential economic dividends. Across these initiatives, a larger narrative becomes visible.

The Budget reflects a shift from maximizing short-term revenues to building the strategic infrastructure required for India to sustain long-term growth. Tax holidays for data centers, duty rationalization for SEZs, and multibillion-rupee commitments to semiconductors reflect a fiscal philosophy that prioritizes capability creation over immediate revenue collection. This approach naturally carries risk delays in implementation, strain on administrative capacity, and diversion of capital to incentive-driven sectors. However, if managed with consistency, the policy architecture could set the stage for transformative industrial outcomes.

At the tax-policy level, the Budget underscores the importance of coherence across ministries. The alignment of digital policy, commerce frameworks, and electronics manufacturing incentives suggests a more unified strategic approach. Ensuring this coherence holds during execution will be crucial, particularly in areas such as transfer pricing for cloud operations, duty assessments within SEZs, and the incentive governance framework for semiconductor projects. Budget 2026 is ultimately a statement of confidence, one that envisions India as a global hub for data infrastructure, manufacturing competitiveness, and semiconductor innovation. The next chapter depends on delivery. With precise implementation, transparent governance, and sustained private-sector engagement, the measures announced this year could shift India onto a distinctly more resilient and technologically empowered growth path.

(Rajiv Chugh, Partner and National Leader, Policy Advisory and Specialty Services, EY India.)

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