Union Budget 2026: ‘Government should focus on funding regional AI infrastructure’

Bengaluru: From mid-to-large enterprises, companies across sectors are now focusing on AI, and there is a surge in demand for people with specialised AI skills. Experts believe that this Budget will see some policy interventions that could be in the form of tax incentives for AI-led solutions and tax credits for R&D activity. They also say that the Budget should focus on developing talent in emerging tech.

Kanishk Agrawal, CTO at Judge Group India, says the next wave of growth will not come from basic digitisation, but through investments in cutting-edge technologies such as AI, semiconductor chips, quantum computing and the infrastructure required to process large volumes of data.

"Every rupee we invest to build a sovereign technology infrastructure today will become a competitive advantage for India in the future. The Budget must view innovation as the primary foundation of the future economy and not merely as an ancillary effort. We require a Budget that provides tax credits for R&D activity, establishes strong linkages between academic institutions and private sector firms and creates access to capital for product-focused startups," he adds.

In the last Budget, Finance Minister Nirmala Sitharaman announced that a Centre of Excellence in AI for education will be set up with a total outlay of Rs 500 crore.    

Tarun Wig, Co-Founder and CEO of Innefu Labs sees significant potential in Budget support for areas such as AI, cybersecurity, data analytics, and trusted data governance frameworks.

It is also expected to articulate the budget policies in line with national initiatives like the IndiaAI Mission and the Digital Personal Data Protection Act, thereby instilling confidence among investors. A visionary Budget that promotes indigenous innovations in deeptech will not only help attract tech giants worldwide, but also enables Indian corporations to develop solutions with a global resilience and security-focused approach, Wig says.

In 2025, five National Centres of Excellence for skilling were announced to equip youth with the skills required for 'Make for India, Make for the World' manufacturing.

Randstad India in its recommendations says India has a large network of skill centres, but the system is fragmented and often disconnected from employer demand.

It recommends that government intervention could include creating a central digital B2B platform connecting training centres, staffing firms, and employers, incentivising placement outcomes, and standardising skill assessment to improve job readiness across sectors. It says that the Budget may propose a National Labour Code Implementation Framework, supported by central funding, to ensure uniform and predictable enforcement.

Though it is believed that this Budget will boost AI infrastructure, industry leaders call for clear data governance standards and more structural reforms. So far, over Rs 10,300 crore has been allocated over five years for IndiaAI Mission and 38,000 GPUs have been deployed. 

Varun Babbar, VP and India MD, Qlik, says the IndiaAI Mission is a strong start, but its impact depends on reaching beyond metros. Budget 2026 should allocate resources to establish at least 20 AI CoEs in tier-2 and 3 cities, creating local innovation hubs rather than concentrating talent in Bengaluru and Hyderabad alone.

He also seeks establishing clear data governance standards. "We need regulatory frameworks that ensure data quality, security, and interoperability across sectors, especially in banking, healthcare, and public services where AI decisions directly impact lives," Babbar says, calling for investment in practical skilling at scale.

Industry leaders also expect a strong emphasis on data centre development. Deepak Kedia, CFO, Mastek Group says recognising data centres as essential national infrastructure, like roads and airports, could accelerate approvals and investments.

Time-bound tax holidays linked to capacity and green targets, smoother GST input tax credit on capital assets and customs duty relief on AI infrastructure imports could attract investments, he adds.

According to him, potential areas for additional funding should include expanding AI compute infrastructure to support AI startups and research; supporting deep-tech AI startups with streamlined funding access; investing in indigenous foundational models and tools for safe, trusted and ethical AI.

Continued support for foundation models, open-source AI, deep-tech R&D through tax incentives and grants, and targeted funding for AI deployment in priority sectors such as health, agriculture, education and smart cities will be critical, says Jaspreet Bindra, Co-Founder of AI&Beyond. "Equally important is expanding AI literacy initiatives like YUVA.ai to ensure India builds not just AI capability, but a future-ready workforce that can use it responsibly and at scale."

The Indian Staffing Federation says the manpower outsourcing industry that drives formal employment, faces a high GST rate of 18 per cent, which discourages formalisation of employment, particularly in labour-intensive sectors like manufacturing. It calls for treating staffing as a 'merit service' at 5 per cent, while recommending revision of Section 80JJA deductions with a dedicated slab for women hires.

"Section 80JJA deductions for additional employee employment remain unchanged since 2014, unadjusted for inflation, and lack gender-specific incentives, reducing their effectiveness in promoting inclusive hiring," it says, adding that the government in the Budget should redirect a portion of the company’s CSR budgets toward establishing worker hostels, canteens, and safety programmes for migrant labour.