Will Union budget unwrap an AI bonanza for India?

The finance ministry is steering the effort to set policy direction and funding priorities for AI and related technologies in collaboration with a range of ministries, three people aware of the development said. The ministries of electronics and IT, education, defence, science and technology are part of the process, along with the departments of space and telecommunications, reflecting the government’s view that AI will cut across industry, research, national security, space and digital infrastructure.

On 1 February, finance minister Nirmala Sitharaman may roll out a mix of AI-related announcements, programme-level measures and higher budgetary allocations across ministries rather than propose a single headline initiative, the people cited above said on the condition of anonymity. Apart from AI, the budget may also focus on robotics, deep-tech research, advanced innovation ecosystems, quantum computing and deepfake-related safeguards, positioning them as central to India’s growth strategy.

According to one of the three people, the government believes that technology-led growth will be critical to grow tax revenues over. "Higher adoption of AI and automation can raise productivity, formalize economic activity and strengthen export competitiveness which, in turn, supports higher tax collections without increasing rates. At the same time, success in high-value technology exports and intellectual property creation can generate sustained foreign exchange earnings and position India as a global supplier of advanced solutions," the person said.

India is convinced about the importance of AI in powering growth to become a $7 trillion economy by 2030, given how automation and AI have boosted China’s ability to execute large infrastructure projects swiftly, enhancing its industrial might.

The government views AI not as standalone industry, but something with the potential to enhance broad-based productivity and growth, the second official said, adding this priority will manifest in elevated research and development funding and targeted programme support.

“This is not about quick fixes or one-year outcomes. The idea is to start initiatives that can run for years and fundamentally change the growth trajectory. The focus is on making new-age technologies credible and scalable drivers of economic growth as India works towards its 2047 development goals," the official said.

Key to this approach is India's Research, Development and Innovation (RDI) Fund, which has an outlay of ₹1 trillion over six years till fiscal year 2031 (FY31). For FY26, the government has already set aside ₹20,000 crore as the initial tranche under the scheme.

“The allocation under the RDI framework may rise sharply in FY27, with a growing focus on strategic areas such as space technologies, space exploration and space-based surveillance capabilities," the second official said. "Quantum technologies are also set to feature prominently in the long-term roadmap."

To be sure, the government takes the final call on allocations closer to the budget, keeping in mind revenue and growth forecasts as well as savings in revenue spending. Queries emailed to the ministries of finance and Ministry of Electronics and Information Technology (MeitY) on 6 January remained unanswered.

The FY26 budget allocated ₹2,000 crore for the IndiaAI Mission, ₹500 crore for a new AI Centre of Excellence, five National Centres of Excellence for skilling, 80 IndiaAI Labs and 20 AI curation units; and a 'Deep Tech Fund of Funds' to support next-generation startups. The Centre has also approved a National Quantum Mission with a ₹6,003 crore outlay for the period from 2023-24 to 2030-31.

“Such targeted interventions are likely to be expanded as part of a broader AI-led growth strategy, with applications spanning manufacturing, agriculture, healthcare, logistics and governance. While budgetary allocations for AI-focused programmes could go up, the emphasis is on building self-sustaining, revenue-generating AI platforms and solutions that reduce long-term fiscal dependence while supporting economic growth," the first official said.

Apart from mission-mode programmes, the budget may also signal continued support for innovation ecosystems nurturing early-stage and deep-tech startups. Schemes such as the Atal Innovation Mission, and the National Geospatial Mission are expected to play a supporting role in creating foundational infrastructure and talent pipelines for advanced technologies, including robotics, AI-driven mapping and spatial analytics.

Experts say clarity will be critical for long-term execution.

“India trails China's AI/robotics edge in industrial-military domains, but it can close gaps in the medium term (five to seven years) via ecosystem building and international collaborations," said Sanjay Kuanar, dean, School of Engineering and Computer Science, Birla Global University.

Prioritizing skilling, ethical AI frameworks, and quantum-AI integration will counter China's lead while leveraging India's talent pool, said Kuanar. Strategic focus on data centres, energy-efficient architecture and IndiaAI mission schemes like the ₹1 trillion R&D fund positions India for rapid scaling. Balanced compute-storage-network investments will drive efficiency gains, propelling sectors like manufacturing and services ahead by 2026. Late-mover advantage via adaptation for India's scale ensures leapfrogging, not just catching up, said Kuanar.

According to him, targeted investments in sovereign infrastructure and talent skilling are critical for stepping up AI and computing capabilities, which will enable faster growth in industrial, infrastructure, and services sectors.

“From a strategic standpoint, India can no longer afford to treat AI and deep tech as purely economic tools. China’s scale and state-backed investments have turned technology into an instrument of power," said Amit Singh, associate professor at the Special Centre for National Security Studies, Jawaharlal Nehru University. “For India, sustained budgetary support for AI and deeptech is essential to build strategic autonomy, reduce dependence on Chinese technology inputs, and secure long-term advantages in areas such as defence, space and critical infrastructure," said Singh. Such efforts are essential for translating long-term policy vision into durable economic and technological outcomes, Singh added.

“India needs a shift from permission-first to innovation-first policy. The real unlock is regulatory clarity, open data, and talent mobility. If India treats AI like digital infrastructure—trusted, scalable, and accessible—we won’t just adopt global models, we’ll build systems uniquely tuned to Indian scale, diversity, and ambition," said Pawan Prabhat, co-founder of Shorthills AI, a generative AI and data engineering company.

“India needs a policy framework that enables real deployment. For AI, this means easier access to public datasets with strong privacy safeguards, a national compute grid for training, and clear security and liability standards for commercial use, as being actively pursued under the IndiaAI Mission. Quantum, AI and digital public infrastructure initiatives, including the National Quantum Mission, should be linked to industry sandboxes that allow companies to test and scale solutions locally. These shifts can turn advanced technologies into measurable economic enablers for India," said Dr Srinivas Padmanabhuni, chief technology officer (CTO), AIEnsured.

“Policy must shift from pilots to large-scale adoption to make AI and new-age technologies true growth pillars for India. Recent initiatives such as the IndiaAI Mission signal intent, but impact will depend on faster regulatory clarity, stronger public–private collaboration, and incentives for enterprise deployment across MSMEs and core sectors. Parallel investments in digital infrastructure and future-ready skills will be critical to translate AI innovation into sustained, inclusive economic growth," said Raghu Pareddy, chief executive officer (CEO) and founder of Wissen Technology, an IT consulting and software development firm.

The government has taken early steps to shape the regulatory environment for AI, with the Department for Promotion of Industry and Internal Trade releasing a working paper on generative AI and copyright that explores how to balance innovation and creators’ rights. The paper proposes a framework under which AI developers could use lawfully accessed content for training through a centralised royalty mechanism, signalling an effort to create a clear and innovation-friendly policy ecosystem for AI development in India.

“Positioning artificial intelligence and deep technologies at the centre of economic planning, backed by higher and more sustained R&D funding, is critical if India wants to build global-scale capabilities rather than remain a consumer of imported technologies. The focus on multi-ministerial coordination also suggests the government recognises that AI-led growth will cut across sectors, from industry and education to defence and space," said R.K. Bhatnagar, director general, Voice of Indian Commtech Enterprises (VOICE), a lobby group that represents Indian communications and technology firms.