Over the past 5 years, Artificial Intelligence (AI) has become a core component of India’s tech infrastructure. While the IndiaAI Mission, launched in 2024 with an outlay of ₹10,371 crore, provided a foundational push towards AI adoption in the country, the upcoming 2026 budget presents an opportunity to strengthen the foundation and build a responsible AI framework. A framework that balances between innovation and citizen well-being. Therefore, Budget 2026 should focus on four critical areas – sovereign compute capacity, ethical governance institutions, MSME empowerment, and climate-aligned infrastructure.
Sovereign AI Stack
The most urgent requirement for India is the development of a sovereign compute stack. Currently, most Indian startups and researchers rely on foreign cloud providers for the Graphics Processing Units (GPUs) needed to train large models. This creates a dependency that can lead to data sovereignty concerns and high costs.
Budget 2026 should allocate specific funds for a National Compute Credit Programme. This would allow local startups and academic researchers to access subsidised GPU time on India-based platforms. Industry experts suggest that treating data centres as essential national infrastructure, on par with roads or airports, would speed up approvals for building this capacity. The government can ensure that the country’s “intelligence” remains within its borders by providing viability gap funding to private players to set up high-performance computing centres in Tier-2 and Tier-3 cities.
Ethical Governance
Innovation without guardrails can lead to risks such as deepfakes, algorithmic bias, and privacy violations. In late 2025, the Ministry of Electronics and Information Technology (MeitY) released the IndiaAI Governance Guidelines, which introduced seven “sutras” (principles), including fairness, accountability, and safety. However, guidelines remain voluntary unless backed by institutional strength.
The upcoming budget should allocate funds for the establishment of an AI Safety Institute (AISI). This body would act as a technical advisor to sectoral regulators, helping them evaluate high-risk AI systems. For instance, in the financial sector, an inter-ministerial task force could use these funds to develop fraud-detection systems for UPI transactions. Instead of introducing a rigid “AI Act” that may stifle growth, the budget can fund “regulatory sandboxes” where companies can test new tools under government supervision to ensure they meet safety standards before a full market launch.
AI for MSMEs
Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy, yet they often lack the capital to adopt expensive AI tools. While large corporations are already using AI for supply chain management, many smaller firms are being left behind.
Budget 2026 should introduce an “SME AI-Readiness” grant. This could be a performance-linked incentive (PLI) for software providers who create “plug-and-play” AI solutions for small businesses. The budget should also support a Unified India Dataset Platform (IDP). The government can help MSMEs build tools tailored to the Indian market, such as voice-based assistants for rural traders who may not be comfortable with English interfaces, by providing anonymised, high-quality public data in local languages.
Green AI
Training AI models is an energy-intensive process. As India expands its data centre capacity, its carbon footprint will grow. Budget 2026 has a chance to lead the world by linking fiscal incentives for AI to sustainability benchmarks.
Tax holidays and accelerated depreciation for data centres should be tied to “Green AI” targets. For instance, a facility that procures at least 50% of its power from renewable sources should be eligible for higher tax benefits. By encouraging the use of energy-efficient hardware and cooling systems, the government can ensure that India’s tech growth aligns with the nation’s net-zero commitments.
Future-Ready Workforce
The final pillar of responsible adoption is the human element. With over 15 lakh engineers graduating annually, there is a mismatch between academic knowledge and the skills required for the AI era.
The budget should increase the outlay for “IndiaAI FutureSkills.” This programme should focus on AI ethics, data engineering, and prompt engineering. Establishing “Centres of Excellence” in collaboration with the private sector will allow students to work on real-world problems, such as using AI to improve crop yields or predict disease outbreaks in rural areas. The government can ensure that the benefits of AI are distributed nationwide rather than concentrated in a few tech hubs by modernising labs in polytechnic colleges and providing additional funds to tier 2 and tier 3 city educational centres.
2026 and Beyond
The Union Budget 2026 can give the AI industry in India a push to go from a consumer to a creator economy. India can build a powerful, trusted AI ecosystem by focusing on sovereign capacity, ethical oversight, and sustainable growth. Through responsible adoption of AI, the country can ensure that technology serves the needs of every citizen, from the farmer seeking weather advice to the small business owner managing a global supply chain. A forward-looking budget will provide the direction to make this vision a reality.
