Introduction
Union Budget 2026 shows that India is moving beyond simply offering incentives for assembling electronics and is now focusing on building a complete manufacturing ecosystem. Instead of looking at electronics production in parts, the government is treating it as a connected value chain — including cloud infrastructure, components, logistics, and semiconductors.
This shift reflects a more mature and consistent policy approach. It also highlights India’s larger goal of promoting technology-led development, where digital infrastructure, advanced manufacturing, and innovation play a central role in driving long-term economic growth.
How Is India Progressing Towards Tech-Driven Development?
- Sovereign AI Infrastructure & “Compute-as-a-Public-Good”: India is treating Artificial Intelligence not just as software but as critical national infrastructure,launching a “sovereign compute” strategy to democratize access for startups and researchers who cannot afford private cloud costs.
- This creates a strategic moat against global tech monopolies by building indigenous foundation models on government-backed hardware, ensuring data sovereignty and culturally contextual AI.
- The February 2026 AI Impact Summit showcased “BharatGen”, India’s first sovereign text-to-speech model covering 22+ Indian languages, marking a shift from imported AI solutions to digital linguistic sovereignty.
- It demonstrates how indigenous AI can deepen inclusion, reduce platform dependence, and align technological growth with India’s cultural and federal diversity.
- Semiconductor 2.0- Commercial Fab & Component Indigenization: Moving beyond the initial hype of assembly, the ecosystem has matured into “ISM 2.0,” creating a complete supply chain including equipment, specialty gases, and substrate materials to support commercial fabrication.
- This shift reduces the “import intensity” of electronics manufacturing and insulates the economy from geopolitical supply shocks by securing the most critical layer of the tech stack.
- The 2026 Union Budget expanded the Electronics Component Manufacturing Scheme outlay to ₹40,000 crore, signalling policy support for domestic production of semiconductor equipment, materials, and components, key inputs previously almost entirely imported.
- Private Entry in India’s Space-Tech Sector: The space sector has successfully transitioned from a state-monopoly to a commercially vibrant “NewSpace” economy, where private players are now executing end-to-end missions from satellite manufacturing to launch.
- This structural reform allows ISRO to focus on deep-space exploration while private entities capture the lucrative global low-earth orbit (LEO) market, significantly boosting India’s share of the global space economy.
- The Indian space sector, valued at about USD 8.4 billion and currently around 2–3 % of the global space economy, is projected to grow to USD 44 billion by 2033 through NewSpace reforms and private participation.
- Private players like Skyroot Aerospace (Vikram-S rocket) and Agnikul Cosmos (3D-printed engines) are propelling India’s space economy.
- AI-Integrated Digital Public Infrastructure (DPI 2.0): India is upgrading its world-famous DPI (UPI, Aadhaar) into “DPI 2.0” by embedding voice-based AI agents to make digital services accessible to the illiterate and semi-literate population.
- This evolution from “app-based” to “conversational” interactions is dissolving the digital divide and creating a new exportable standard for the Global South, offering a low-cost, high-tech governance model.
- India’s DPI currently empowers 97% of the population with Aadhaar digital IDs (NASSCOM 2024) and in 2022, UPI contributed an estimated $16.2 billion to India’s GDP, underscoring its growing role in driving the country’s digital economy.
- Rise of Defense Tech- From Buyer to High-Value Exporter: The defense sector has achieved a “technological breakout,” moving from licensed production to designing and exporting complex systems like artillery, missiles, and avionics.
- This reversal is powered by “Positive Indigenization Lists” that ban imports, forcing the domestic industry to invest in high-end R&D and creating a self-sustaining military-industrial complex that competes on quality, not just price.
- India’s defence indigenisation push is yielding results, with defence exports reaching a record ₹23,622 crore in FY25, nearly 34-times growth in a decade, while 75% of the capital procurement budget is now reserved for domestic industry, catalysing indigenous R&D and private sector participation.
- Green Hydrogen & Clean Tech Manufacturing: India is positioning itself as the “Green Shop floor” of the world by leveraging its low-cost renewable energy to produce Green Hydrogen and Ammonia for export to Europe and Asia.
- The strategy integrates PLI schemes for electrolyzers with guaranteed offtake mandates, creating a commercially viable alternative to fossil fuels for hard-to-abate sectors like steel and shipping.
- India’s green transition is gathering pace, with the National Green Hydrogen Mission targeting 5 MMT annual production by 2030, and JSW Steel has commissioned the country’s largest green hydrogen plant in 2025 to decarbonise steel manufacturing.
- 6G Research & Telecom Standardization Leadership: Instead of playing catch-up as in previous generations, India is actively shaping 6G standards to ensure future networks align with its specific needs for rural coverage and affordability.
- The “Bharat 6G Alliance” brings together academia and industry to secure essential patents early, ensuring India becomes a technology creator and licensor rather than just a royalty-paying consumer.
- India’s 6G strategy aims to secure 10% of global 6G patents by 2030, supported by the operationalisation of 100+ 5G/6G research labs, strengthening indigenous R&D and India’s role in global telecom standard-setting.
- Deep-Tech Policy & “Startup to Scaleup” Pivot: The government has formally recognized “Deep Tech” as a distinct asset class, revising policies to provide “patient capital” for startups working on long-gestation technologies like quantum computing and biotech.
- This acknowledges that science-based innovation requires different support structures than software services, aiming to build generational companies that solve fundamental problems.
- India’s deep-tech push was formalised in February 2026 with a new “Deep Tech Startup” definition, unlocking targeted tax incentives, alongside the launch of a ₹1,000 crore sovereign venture capital fund for space startups.
- Data-Driven Healthcare & AI Diagnostics: The healthcare ecosystem is transitioning from physical files to a “longitudinal digital health record” system, now overlaying “Responsible AI” standards (SAHI) to benchmark clinical algorithms and ensure safe deployment of AI diagnostics in public health.
- As of August 2025, 79.9 crore ABHA IDs are active. At the India AI Impact Summit 2026, the Union Minister for Health and Family Welfare launched SAHI (Secure AI for Health Initiative) and BODH (Benchmarking Open Data Platform for Health AI) to strengthen AI-driven innovation in India’s healthcare ecosystem.
- Bio-Manufacturing & Precision Agritech: The government is fusing biotechnology with digital tools to revolutionize agriculture and healthcare, moving towards “Biomanufacturing” to replace fossil-fuel based chemicals and deploying drone fleets to modernize farm productivity through precision application of fertilizers.
- For instance, the BioE3 Policy (Aug 2024) targets a $300 billion bioeconomy by 2030. And, Namo Drone Didi scheme marks a significant shift from manual and labor-intensive practices to precision agriculture.
- 1,094 drones have been distributed to women SHGs by Lead Fertilizer Companies, including over 500 drones provided under the Namo Drone Didi initiative.
What are the Key Issues Associated with India’s Tech-Driven Development?
1. The AI Power Paradox and Resource Intensity
- The rapid growth of AI data centres is conflicting with India’s climate goals.
- High-density GPU clusters require huge amounts of electricity and water for cooling.
Sustainability friction
- Efforts to build sovereign AI systems like BharatGen may strain natural resources and the national power grid.
Energy dependence
- AI training and data centre expansion are growing faster than renewable energy adoption.
- This is forcing continued reliance on coal-based baseload power.
Urban concentration risks
- Over 50% of India’s data centre capacity is in Mumbai, with the rest in Bengaluru, Chennai, and Delhi-NCR.
- These are water-stressed cities, raising concerns about cooling water demand, groundwater depletion, and climate-resilient urban planning.
2. Semiconductor Supply Chain “Upstream” Vulnerabilities
- Despite success in attracting assembly and testing units under the India Semiconductor Mission (ISM), India still depends heavily on imports for key inputs.
Critical import dependence
- Ultrapure water
- Specialty gases
- Silicon wafers
Lack of upstream autonomy
- Indian fabs remain exposed to geopolitical supply shocks.
- Risk of becoming “glorified assembly lines.”
Mid-stream heavy ecosystem
- Weak domestic base for 250+ specialty chemicals needed for front-end fabrication.
Scale vs dependence
- 10 ATMP projects worth ₹1.60 lakh crore approved.
- But key equipment (US, Japan, ASML Netherlands) and specialty materials like high-purity gases and photoresists are still largely imported.
3. The “Employability Gap” in Deep-Tech Roles
- India produces the largest number of STEM graduates, but there is a mismatch between traditional IT skills and deep-tech requirements.
Skill mismatch
- Generative AI
- Quantum computing
- VLSI design
Labour market imbalance
- Specialized wages rising rapidly.
- Millions of engineering graduates remain underemployed.
- Risk of turning the demographic dividend into a social challenge.
Two-speed labour market
- Technology is advancing faster than curriculum reform.
- Only a small elite is deep-tech ready.
Cybersecurity talent shortage
- 30–50% supply gap in roles like cloud security, architecture, and zero-trust systems (Teamlease data).
4. Digital Public Infrastructure (DPI) and Cybersecurity Risks
- UPI and Aadhaar centralise national data, creating a high-value single point of failure.
Expanding attack surface
- AI-driven governance (DPI 2.0) enables advanced phishing and deepfake financial fraud.
- Law enforcement capacity is lagging.
Systemic risk
- Interconnected digital systems mean a small breach can trigger wider financial or identity threats.
Rising cyber incidents
- Cybersecurity cases rose from 10.29 lakh (2022) to 22.68 lakh (2024).
- 51% of firms see cyber breaches as top performance risk (FICCI–EY, Feb 2026).
5. The “Regulatory Interpretation” Chasm
- The Digital Personal Data Protection (DPDP) Act and 2025 Rules have created compliance challenges.
SME burden
- High cost of data localisation.
- Complex consent-manager systems.
Innovation impact
- Startups divert funds from R&D to compliance and data auditing.
Uneven adoption
- Limited regulatory clarity outside metropolitan regions.
- Growing technical debt.
Interpretation challenges
- 71% of Indian enterprises struggle to understand the Act and rules (EY report).
6. Tier-1-Centric Tech Concentration
- Technology growth is concentrated in major urban hubs.
Geographic imbalance
- Tier-1 cities create technology.
- Other regions mainly consume services.
Consequences
- Inflated urban real estate.
- Rural exclusion from manufacturing and design value chains.
- Limited diversity in AI training data.
Urban strain
- “Silicon Valley of India” model facing infrastructure limits.
- BharatNet has not yet converted rural connectivity into local manufacturing.
Job concentration
- Bengaluru alone accounts for 26–31% of AI job postings.
7. E-Waste and the Hardware Obsolescence Cycle
- Rapid electronics growth and short GPU life cycles (2–3 years) are generating large volumes of toxic e-waste.
Informal recycling risks
- Most AI-related waste handled informally.
- Heavy metal contamination of groundwater.
Policy gap
- No comprehensive circular tech economy policy.
- No strong mandate for hardware longevity or rare-earth recovery.
Scale of problem
- 13.98 lakh tonnes of e-waste generated in 2024–25 (CPCB).
8. Algorithmic Exploitation in the Gig Economy
- Quick commerce relies on algorithm-driven labour systems.
Worker concerns
- 10-minute delivery pressures.
- Lack of social security.
- Safety risks.
Labour protests
- Nationwide strike by gig workers in December 2025.
- Demand for higher base pay and safer working conditions.
9. Innovation Deficit and IP Ownership Challenges
- India’s R&D spending remains about 0.64% of GDP (Economic Survey 2025–26).
Value capture problem
- Much IP owned by foreign companies.
- India earns mainly labour and assembly margins.
Profit outflow
- Royalties and design value flow abroad.
Input-driven growth
- Based on labour and capital, not innovation or patents.
Low domestic value addition
- iPhone exports ₹1.5 lakh crore (FY25).
- Domestic value addition only about 20%.
- Around 80% of export value flows abroad.
Pseudo-innovation culture
- Imported technologies rebranded as indigenous.
- Weakens genuine R&D credibility.
Example
- The recent controversy involving Galgotias University’s cosmetically rebranded Unitree Go2 robodog in AI Impact Summit 2026 showcased how such PR-driven claims can undermine the credibility of India’s Atmanirbhar ambitions.
What Measures are Needed to Strengthen India’s Tech-Driven Development?
- Institutionalize “Translational Research” Frameworks: To bridge the “Valley of Death” between academic patents and commercial products, the government must mandate and fund professional Technology Transfer Offices (TTOs) within all premier institutes.
- This creates a formal “Lab-to-Market” pipeline where intellectual property is aggressively licensed to domestic startups rather than stagnating in journals.
- By aligning academic incentives with Commercialization Velocity, India can transform its massive research output into tangible economic value and proprietary deep-tech assets.
- Establish a “Sovereign Deep-Tech Fund”: Recognizing that private Venture Capital avoids high-risk, long-gestation hardware projects, the state must anchor a Fund-of-Funds dedicated solely to Deep Science innovation with a 15-year horizon.
- This “Patient Capital” effectively de-risks early-stage investments in semiconductors, quantum computing, and biotech, signaling stability to private investors. It corrects the market failure where capital chases quick software wins over foundational, strategic technology capabilities.
- Operationalize “Agile Regulatory Sandboxes”: Policymaking must move from “permission-based” to “consultation-based” by creating sector-specific Innovation Sandboxes for AI, drones, and fintech.
- These controlled environments allow startups to test disruptive technologies with Safe Harbor provisions, exempting them from archaic compliance norms during the pilot phase.
- This “Iterative Governance” prevents innovation from being stifled by red tape while ensuring regulators understand risks before framing final laws.
- Secure “Upstream” Critical Mineral Assets: To prevent semiconductor and EV manufacturing from becoming mere assembly lines, India must aggressively pursue Mineral Security Partnerships to own equity in foreign lithium, cobalt, and gallium mines.
- This strategy of Resource Diplomacy secures the raw material supply chain against geopolitical shocks and cartels.
- By vertically integrating backwards, India ensures that its high-tech industrial base is not held hostage by raw material scarcity.
- Mandate “Digital Twins” for Public Infrastructure: The government should enforce a Digital Twin Standard for all major capital expenditure projects (railways, power grids, urban planning), creating virtual replicas of physical assets.
- This integrates IoT and AI into the core of infrastructure, enabling Predictive Maintenance and scenario planning that drastically reduces operational costs.
- It transforms static concrete infrastructure into “Smart Assets” that generate data for continuous optimization and efficiency.
- Enforce a “Circular Tech Economy” Policy: To combat resource depletion, policy must pivot to Urban Mining, incentivizing the extraction of gold and rare earth metals from e-waste to feed the domestic electronics supply chain.
- Implementing strict Extended Producer Responsibility (EPR) and “Right to Repair” laws will force manufacturers to design for longevity and recyclability.
- This creates a self-sustaining material ecosystem that reduces import dependence for critical manufacturing inputs.
- Developing “Tier-2 Innovation Clusters”: To arrest the infrastructure collapse of metros, specific Tier-2 cities should be designated as Special Technovation Zoneswith subsidized high-speed connectivity and tax holidays for setting up R&D centers.
- This Spatial Deconcentration leverages lower operational costs and untapped talent pools, making the tech economy more inclusive and resilient.
- It prevents “Hub Risk” where a crisis in one city (like Bengaluru floods) cripples the entire national IT output.
- Architect a “Zero-Trust” Sovereign Cyber-Shield: As Digital Public Infrastructure expands, the security paradigm must shift from “perimeter defense” to a Zero-Trust Architecture mandated for all government and critical sector networks.
- This involves deploying indigenous, AI-driven Threat Hunting systems that assume breaches are inevitable and continuously verify every digital interaction.
- Strengthening this “Cyber-Kinetic” resilience is non-negotiable to protect national sovereignty in an era of state-sponsored cyber warfare.
