New Delhi, Feb. 2 -- The Union Budget 2026-27 laid out the government's approach to enterprise technology through a mix of tax policy, manufacturing incentives, and supply-chain planning. Presented by Nirmala Sitharaman, the Budget focused on enabling large-scale cloud infrastructure, simplifying taxation for IT services, expanding electronics and semiconductor manufacturing, and securing access to critical minerals and applied AI systems.
Rather than introducing multiple new schemes, the Budget concentrated on scaling existing programmes, reducing operational friction, and aligning policy with how global technology supply chains function.
Cloud and data centres: export-led infrastructure model
The Budget proposed a tax holiday until 2047 for foreign companies that provide cloud services to customers outside India using data centre services located in the country. To separate export revenue from domestic consumption, sales to Indian customers would need to be routed through an Indian reseller.
A 15% safe-harbour margin on cost was also proposed, where Indian data centre entities provide services to related overseas companies. The combined measures are intended to reduce tax uncertainty for cloud providers using India as a regional or global hosting base.
IT services and GCCs: fewer categories, higher thresholds
To simplify transfer pricing for technology services, the Budget proposed grouping software development services, IT-enabled services, KPO, and contract R&D linked to software development into a single category named "Information Technology Services," with a uniform safe-harbour margin of 15.5%.
The turnover threshold for opting into the safe-harbour regime is proposed to increase from Rs.300 crore to Rs.2,000 crore, bringing a wider set of large IT services firms and global capability centres within scope. Approvals are proposed to be automated and rule-based, with an option to lock in the arrangement for up to five years.
For companies pursuing Advance Pricing Agreements, the Budget proposed faster processing of unilateral APAs for IT services, with a target timeline of two years, extendable by six months.
Electronics manufacturing: ECMS expanded to Rs.40,000 crore
A major manufacturing announcement was the expansion of the Electronics Components Manufacturing Scheme (ECMS). Launched in April 2025 with an outlay of Rs.22,919 crore, the scheme has already attracted investment commitments at more than twice its original target. The Budget proposed increasing the total outlay to Rs.40,000 crore to sustain this momentum.
ECMS is designed to strengthen component manufacturing rather than final assembly alone. The targeted components include display modules, camera sub-assemblies, printed circuit board assemblies, lithium cell enclosures, resistors, capacitors, and ferrites. These inputs are used across smartphones, laptops, and consumer appliances such as microwave ovens and refrigerators.
Unlike earlier production-linked incentive schemes for electronics, ECMS allows companies to access subsidies based on incremental investment and output across component categories, reflecting a shift toward building depth in the domestic electronics supply chain.
Semiconductors: ISM 2.0 links fabs, components, and supply chains
The Budget announced India Semiconductor Mission (ISM) 2.0, with a budgetary provision of Rs.1,000 crore for FY 2026-27. The revised mission broadens the semiconductor policy framework beyond fabrication plants to include equipment manufacturing, materials, Indian intellectual property, and supply-chain capabilities.
ISM 2.0 places emphasis on supporting upstream and mid-stream activities such as semiconductor-grade materials, capital equipment, design enablement, and workforce development. The approach reflects an effort to integrate semiconductor manufacturing with electronics components covered under ECMS, rather than treating fabs as isolated investments.
By aligning semiconductor incentives with component manufacturing and electronics assembly, the government aims to create interlinked clusters where chips, components, and finished products are developed within the same ecosystem.
Critical minerals: rare earth corridors across four states
To address raw material dependencies in electronics, clean energy, and advanced manufacturing, the Budget announced the development of rare earth processing corridors in Odisha, Kerala, Tamil Nadu, and Andhra Pradesh.
The proposed corridors are intended to support downstream industries that rely on rare earth elements, which are essential for semiconductors, electronics, electric mobility, and defence systems. The announcement signals a policy focus on securing inputs that underpin high-technology manufacturing.
Artificial intelligence in agriculture: multilingual AI platform
The Budget also announced a new multilingual AI platform for farmers, referred to as Bharat-VISTAAR. The platform is designed to integrate AgriStack datasets with crop and region-specific recommendations from the Indian Council of Agricultural Research.
The system is intended to deliver AI-based advisories in multiple Indian languages, reflecting the government's broader strategy of deploying applied AI systems built on national digital infrastructure.
Published by HT Digital Content Services with permission from TechCircle.