India’s AI Moment Gets a Reality Check in Budget 2026

When Finance Minister Nirmala Sitharaman stood up to present the Union Budget on February 1, 2026, artificial intelligence was not framed as a flashy moonshot. Instead, it appeared everywhere, quietly embedded across sectors, budgets, and infrastructure plans.

At the centre of this approach sits the IndiaAI Mission, which received a ₹1,000 crore allocation for FY27. On the surface, that number looks smaller than last year’s ₹2,000 crore headline figure. In context, it tells a more nuanced story about how India plans to build its AI future: cautiously, infrastructurally, and with an eye on execution rather than announcements.

The ₹1,000 crore allocation is a 25% increase over the revised estimate of ₹800 crore actually spent in FY26. That detail matters. It suggests the government is recalibrating ambition to match implementation capacity, not retreating from AI, but slowing down to make sure the pipes actually work.

The execution gap Budget 2026 quietly acknowledges

The biggest unspoken theme in this year’s AI allocation is underutilisation.

In FY26, the IndiaAI Mission was budgeted at ₹2,000 crore, but only 40% of that money was ultimately used. That gap raised uncomfortable questions across industry and policy circles about whether the country’s AI ambitions were running ahead of administrative reality.

By setting FY27 funding at ₹1,000 crore, the government appears to be signalling a shift in priorities. Less emphasis on headline numbers, more pressure on measurable delivery.

The broader IndiaAI Mission remains intact. Approved by the Union Cabinet in March 2024, it carries a five-year outlay of ₹10,372 crore through 2029. Its goals remain ambitious: build national compute capacity, refine public datasets, support indigenous foundational models, and subsidise GPU access for startups and researchers.

What Budget 2026 does differently is suggest that future expansions will depend on results, not promises.

Compute first, everything else later

If there is one area where progress has been tangible, it is infrastructure.

By January 2026, the government confirmed that more than 38,000 GPUs had already been deployed under the IndiaAI framework, nearly four times the original target of 10,000. These resources are being made available through partnerships with private cloud providers such as Yotta Data Services and NxtGen, allowing startups and academic institutions to access high-end compute at subsidised rates.

At the same time, 11 Indian companies and startups have been empanelled to build indigenous AI models, a step meant to reduce reliance on foreign foundational systems.

This infrastructure-first emphasis shows up even more clearly in one of the Budget’s most consequential decisions: a long-term tax holiday for data centres.

A 21-year bet on India as an AI infrastructure hub

Budget 2026 extends a tax holiday until 2047 for foreign cloud providers that serve global customers using data centres located in India. The incentive is designed to attract hyperscalers like Google, Microsoft, and Amazon to build and expand AI-grade infrastructure inside the country.

According to the IT Ministry, data centre investments worth roughly $70 billion are already underway, with total commitments nearing $90 billion. The policy also resolves long-standing tax ambiguities by defining safe-harbour margins and clarifying permanent establishment rules.

The logic is straightforward. Cheaper, locally available compute lowers costs for Indian startups, improves reliability, and anchors India more firmly in the global AI supply chain. It also aligns economic incentives with data sovereignty by requiring Indian customer data to stay within the country.

In practical terms, this may do more to accelerate India’s AI ecosystem than any single government grant.

AI moves from policy to farm fields and classrooms

Unlike earlier budgets that treated AI as a standalone sector, Budget 2026 spreads it across citizen-facing systems.

In agriculture, the government announced Bharat-VISTAAR, a multilingual AI platform that integrates AgriStack data with scientific advisories from ICAR. With an allocation of ₹150 crore, the system aims to deliver real-time guidance on weather, soil health, pest management, and crop planning, initially in Hindi and English before expanding to regional languages.

In education, the Budget proposes 15,000 AI labs in schools, 10,000 new technology fellowships at institutions like IITs and IISc, and a ₹500 crore Centre of Excellence for AI in Education. A new standing committee will examine AI’s impact on jobs, skills, and curriculum design, signalling recognition that workforce disruption is no longer theoretical.

AI also appears in customs, logistics, and assistive technologies, from non-intrusive container scanning at ports to smarter manufacturing of devices for persons with disabilities.

The pattern is clear. AI is no longer being treated as a pilot project. It is being positioned as basic infrastructure, similar to roads, power, or broadband.

The global stage is coming next

The timing of these choices is not accidental.

India will host the AI Impact Summit on February 19–20, 2026, in New Delhi, the first such global AI summit held in the Global South. Announced by Prime Minister Narendra Modi at the France AI Action Summit, the event is expected to showcase over 200 AI models and focus on themes spanning healthcare, agriculture, education, climate, and governance.

The government has already hinted that discussions around AI Mission 2.0 will begin later this year, potentially with larger fiscal commitments once early infrastructure investments mature.

In that sense, Budget 2026 looks like a bridge year, laying groundwork ahead of a more expansive second phase.

Ambition tempered by realism

India’s AI spending still looks modest when placed beside global peers. The United States and China spend tens of billions annually across public and private sectors, while the European Union commits around €1 billion each year to AI research alone.

But Budget 2026 suggests India is betting on leverage rather than scale. By focusing on compute access, data centres, talent pipelines, and private capital mobilisation, the government is trying to multiply the impact of every rupee it spends.

The risk, as several industry voices point out, remains execution. Underutilised funds, power and water constraints for data centres, and the absence of a unified AI governance framework could slow progress if not addressed quickly.

Still, the shift in tone is notable. This Budget does not sell AI as magic. It treats it as plumbing.

What Budget 2026 is really saying

The ₹1,000 crore allocation for IndiaAI is not a retreat. It is a test.

Can the system spend what it allocates? Can AI tools move beyond pilots into everyday use? Can infrastructure investments translate into globally competitive Indian models and startups?

Budget 2026 places that bet quietly, without spectacle. The next year will decide whether India’s AI strategy evolves into a second, bolder phase, or stalls under the weight of its own ambition.

Either way, the era of AI as a side project in Indian policy-making is clearly over.