Union Budget 2026-27: Tech Sector Seeks AI, Regional Growth Push

With Finance Minister Nirmala Sitharaman set to present the Union Budget 2026-27 on February 1, technology sector leaders and government officials have outlined key expectations focused on AI infrastructure, data governance, regional digital expansion, and cybersecurity investments.

Regional Digital Economy Push

Sanjeev Kumar Gupta, CEO of Karnataka Digital Economy Mission (KDEM), has proposed the creation of dedicated digital economy zones in tier-2 and tier-3 cities, similar to the tax benefits that helped India's IT industry flourish two decades ago. He suggests each state identify 2-3 locations as digital economy zones, where companies would receive central and state tax benefits.

"Any company who set up operations in these digital economy zones will get tax benefits from the central government, and state governments will also provide additional benefits," said Gupta, who has submitted this proposal to the Ministry of Electronics and Information Technology (MeitY).

He recommends revising the STPI policy to increase incentives from ₹1 lakh to ₹1.5 lakh per seat, with an additional ₹25,000 for hiring women in tier-2 cities. This would cover infrastructure costs like laptops and internet bandwidth.

The KDEM chief proposes that for MSMEs, which currently contribute $1.5 trillion to India's GDP there has to be 200% income tax benefits for R&D investments. "If MSME is using innovation in R&D, give them 200% on their income tax benefits. They will start embracing the technology," he said, projecting this could help MSMEs contribute $3.5 to 4 trillion to GDP by 2030-31.

 AI Adoption and Infrastructure

"Automation and AI are now central to India's enterprise competitiveness and long-term economic growth. Budget 2026 presents a timely opportunity to align fiscal priorities and accelerate the shift from AI pilots to scaled, enterprise-wide adoption," said Dominic Pereira, VP, Product Management at Automation Anywhere.

Pereira emphasized the need for "targeted investment in data governance, secure digital infrastructure, and industry-academia skilling programs" to ensure responsible AI growth.

Varun Babbar, VP and India MD at Qlik, pointed to practical challenges. "Nearly half of Indian organizations now have AI in production, but scaling remains the challenge, not because of technology gaps, but due to fragmented data infrastructure and acute skills shortages."

He called for three priorities: clear data governance standards ensuring data quality and security across sectors; allocation of resources to establish at least 20 AI Centres of Excellence in tier-2 and tier-3 cities; and practical skilling programs rather than theoretical courses.

"We don't need more theoretical AI courses; we need programs that train engineers, data professionals, and domain experts to deploy AI responsibly in real-world settings," Babbar said.

Sachin Panicker, Chief AI Officer at Fulcrum Digital, added that, "India stands at a pivotal moment in its AI journey. We expect the Budget to prioritise strategic investments in foundational infrastructure—particularly in world-class data centres, cloud ecosystems, and sustainable high-performance computing—that can unlock enterprise-grade AI adoption across sectors."

Data Centers and Digital Sovereignty

Narendra Sen, Founder & CEO of RackBank and NeevCloud, stressed the strategic importance of domestic infrastructure. "As we move from vision to execution, Budget 2026 must recognize that Data Centers are the new sovereign territory and AI is the new electricity," he said.

Sen said a Production Linked Incentive (PLI) scheme for compute should prioritise domestically developed cloud platforms. "By treating AI infrastructure as a strategic national asset, like similar to highways or power grids, we can ensure that India's data remains within India's legal framework, securing our digital sovereignty," he said.

Ramanujam Komanduri, Country Manager at Pure Storage India, emphasized modernization needs. "Incentives that support modernisation of legacy systems, energy-efficient data centres, and advanced data management technologies can help organisations manage explosive data growth while improving energy efficiency and resilience."

Cybersecurity Focus

Sunil Kr. Sharma, Managing Director & Vice-President, Sales (India & SAARC) at Check Point Software Technologies, called for elevated cybersecurity priorities. "India's digital economy continues to grow rapidly, requiring a commitment to cybersecurity as a fundamental component of creating an economy built on trust, economic growth and resilience as a nation."

Sharma said continued policy support for AI-based threat detection and ransomware prevention, with specific incentives for MSMEs to improve their security posture. "Additionally, it is essential to continue investing in developing cybersecurity skills, as well as developing stronger relationships between the public and private sectors to facilitate sharing of threat intelligence."

The industry expects the Union Budget 2026-27 to address these priorities as India aims to accelerate its digital transformation and strengthen its position as a global technology hub.