Shaping tomorrow with tech-powered Union Budget 2025-26

By Jaideep Ghosh

The Union Budget 2025-26 aims to boost consumption through targeted tax cuts and a strategic shift away from excessive dependence on large-scale public capital expenditure. The fiscal approach seeks to trigger a multiplier effect, where higher consumption fuels economic growth while ensuring fiscal consolidation, leveraging the foundation laid by previous mega investments in infrastructure.

From a technology perspective, the Budget 2025-26 proposals build upon and align with initiatives from recent editions, particularly the July 2024 budget. Viewed in a broader context, these measures constitute a cohesive roadmap rather than isolated announcements, driving sustainable growth.

Investing in Skills and Digital Workforce

The budget outlines significant investment in human capital, innovation, and economic growth. Key skilling initiatives include the proposal to establish five National Centres of Excellence (CoE) in collaboration with global partners, expand capacity at IITs and medical colleges, enhance research fellowships at IISc and IITs, create 50,000 new Atal Tinkering Lab Incubation Centres in schools, increase funding for private-sector R&D, and provide broadband connectivity for all government schools and public health centres.

These initiatives build upon the July 2024 budget, which had announced centrally sponsored schemes to skill 20 lakh youth over five years, upgrade Industrial Training Institutes, focus on women-specific skilling, and introduce a new internship program for one crore youth in association with private enterprises.

Collectively, these measures outline a broader strategy to develop a vast pool of skilled youth professionals.

Funding for the BharatNet Optical Fibre Network has surged by approximately 238% over 2024 to accelerate rural connectivity.

Advancing AI and Deep Tech Innovation

To drive innovation in areas of emerging technologies, the budget proposes a CoE in Artificial Intelligence (AI) for education with an outlay of Rs 500 crore, further strengthening the IndiaAI Mission. This follows similar announcements from the previous year on AI centres in agriculture, healthcare, and sustainable cities. Notably, funding for the IndiaAI Mission is set to increase by over 1,000% in FY26 compared to the revised FY25 allocation. However, given global AI spending trends among other nations and tech giants, this funding may require further upward revision.

Substantial allocations were made in 2024 for R&D in emerging technologies, including 6G, 5G, AI, and the Internet of Things, through initiatives such as the Anusandhan National Research Fund and a Rs 1 lakh crore financing pool for private sector-led innovation.

Expanding Digital Trade and Public Infrastructure

The reliance on Digital Public Infrastructure remains strong. The new budget introduces BharatTradeNet, a unified platform for international trade, building on previous DPI initiatives across sectors such as credit, e-commerce, education, health, labour (e-Shram), logistics, MSMEs, and urban governance.

Strengthening Critical Minerals for Tech Growth

Critical minerals are vital for sustainable technologies. The July 2024 budget launched a mission to secure these minerals through domestic production, recycling, and overseas acquisition while exempting basic customs duty on 25 non-domestic critical minerals. In line with the earlier approach, the current budget has extended exemptions to cobalt powder and waste, lithium-ion battery scrap, lead, zinc, and other key materials.

The rationalisation of import duties on essential electronic components further strengthens the domestic ecosystem for lithium-ion batteries, supporting their use in EVs, mobile devices, and clean-tech manufacturing.

Boosting Startups and Private-Sector Innovation

Startups, as drivers of innovation, continue to receive support through a new Fund of Funds, which includes a fresh Rs 10,000 crore contribution and the introduction of a Deep Tech Fund of Funds. Augmented schemes also facilitate credit access for MSMEs, women entrepreneurs, and first-time business owners.

The budget proposals align with global priorities, channelling increased investments into AI, cybersecurity, and deep tech innovation while keeping India’s unique needs in focus. For instance, funding for the BharatNet Optical Fibre Network has surged by approximately 238% over 2024 to accelerate rural connectivity, while allocations for cybersecurity projects and semiconductor lab development have doubled.

Conversely, funding for BSNL has been halved compared to 2024, while Digital India funding remains stable, reflecting a balanced approach.

Balancing Fiscal Policy for Sustained Tech Growth

India’s workforce remains predominantly informal, and even within the formal sector, over 60% of employees report incomes below the taxable threshold. As a result, tax cuts impact only a small segment of the population. Additionally, a declining Total-Expenditure-to-GDP ratio suggests the government is banking on increased private sector investment.

Historically, the strategy of putting more money in the hands of consumers to spur growth has delivered mixed results. For instance, in the US, while the Kennedy tax cuts of the 1960s fuelled economic expansion, Reagan-era tax cuts in the 1980s led to rising deficits and inequality. The impact of the more recent US Tax Cuts and Jobs Act of 2017 remains debated.

The critical question remains: Can these measures elevate growth from the current 6% range to the 8% target necessary for achieving Viksit Bharat (Developed Nation) aspirations, particularly amid today’s challenging geopolitical environment?

The author is a former Partner at KPMG in India.

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