The Union Budget 2026-27, presented by Nirmala Sitharaman on February 1, 2026, clearly places artificial intelligence at the centre of India’s long-term economic ambitions. This year’s budget feels less about experimentation and more about scale. The emphasis is on moving AI out of labs and pilot projects and into real, wide-reaching use across sectors.
One of the most talked-about announcements is the tax holiday extending until 2047 for foreign companies that set up data centres in India to provide global cloud services. It is a long runway, and perhaps intentionally so. The government seems keen to offer predictability and confidence to global players willing to make large, patient investments in India’s digital backbone.
These announcements arrive just weeks before New Delhi hosts the India AI Impact Summit 2026, where more than 200 sector-specific AI models are expected to be unveiled. The timing is not accidental and it subtly reinforces India’s intent to be seen as an AI builder, not just a user.
Key Takeaways:
- Tax holiday until 2047: Foreign companies using Indian data centres to deliver global cloud services will be eligible for tax exemptions, a move designed to attract large-scale infrastructure investment.
- Bharat-VISTAAR platform: A new multilingual AI system aimed at farmers, offering real-time and verified advice related to weather, soil conditions, and crop management.
- ₹40,000 crore for electronics manufacturing: The allocation for the Electronics Components Manufacturing Scheme nearly doubles, strengthening the hardware ecosystem required to support AI growth.
- Launch of ISM 2.0: India Semiconductor Mission 2.0 shifts focus toward domestic chip design, semiconductor equipment manufacturing, and supply chain resilience.
- E2E Standing Committee: A high-level panel tasked with studying AI’s impact on jobs and aligning education pathways with future workforce needs.
Data centres and semiconductor growth
To position India as a global data hub, the government is offering something many investors value deeply: long-term tax certainty. Under the new policy, foreign cloud service providers can operate with a tax holiday lasting over two decades, provided Indian customers are served through local resellers. This approach appears to balance global ambitions with domestic participation.
Beyond revenue, the larger goal is compute capacity. Advanced AI research depends on massive processing power, and attracting global cloud infrastructure is a practical way to build that base within the country.
Alongside this, the launch of India Semiconductor Mission 2.0 marks a clear shift in ambition. While ISM 1.0 laid the groundwork by supporting fabrication and packaging units, the second phase moves deeper into creating Indian intellectual property. This includes the design of semiconductor equipment and materials, which is a harder but far more strategic space.
The budget allocates ₹1,000 crore for ISM 2.0 in the coming year. At the same time, overall support for electronics manufacturing jumps sharply to ₹40,000 crore. Together, these moves signal that hardware is no longer being treated as a side note in India’s AI story.
AI in agriculture and the services sector
One of the more grounded and practical announcements is Bharat-VISTAAR, short for Virtually Integrated System to Access Agricultural Resources. The platform is designed to speak directly to farmers, quite literally, by using the Bhashini translation tool to communicate in local languages.
By pulling data from the AgriStack portal and research from the Indian Council of Agricultural Research, the system aims to provide tailored advice on soil health, weather patterns, and crop choices. If implemented well, it could reduce risk for farmers, although real-world adoption will likely determine its true impact.
In the services sector, the government has set a bold target: capturing 10 percent of the global market by 2047. The Education to Employment and Enterprise Standing Committee is expected to play a key role here. It will examine how AI and automation are reshaping work in areas such as IT services, healthcare, and design, and then suggest reforms to keep India’s workforce relevant.
Building a future-ready workforce
Skilling continues to be a central theme, though the approach this time feels more structural. The budget outlines plans to develop university townships near industrial clusters. These hubs will bring together colleges, research centres, and industry, with a focus on deep tech and artificial intelligence.
There is also renewed emphasis on increasing women’s participation in STEM fields and ensuring that talent from Tier-2 and Tier-3 cities is not left out of the digital economy. The idea, at least on paper, is to spread opportunity beyond a few established tech centres.
Whether all of this moves at the same pace remains to be seen, but the intent is unmistakable. The 2026-27 budget treats AI not as a trend, but as infrastructure for the next two decades.
Related FAQs
Q1: What is the tax holiday for data centres in Budget 2026?
A1: It is a tax exemption lasting until 2047 for foreign companies that use data centres located in India to provide cloud services to customers worldwide.
Q2: How will Bharat-VISTAAR help Indian farmers?
A2: It functions as an AI assistant that offers customised advice on soil health, weather conditions, and crops in local languages, helping farmers make more informed decisions.
Q3: What is the difference between ISM 1.0 and ISM 2.0?
A3: ISM 1.0 focused on setting up chip fabrication and packaging units. ISM 2.0 expands the scope to include semiconductor equipment design, materials, and full-stack Indian intellectual property.
Q4: What is the role of the E2E Standing Committee?
A4: The committee will assess how emerging technologies like AI affect the job market and recommend changes to the education system so students acquire skills that align with industry needs.
