Rethinking India’s Tech-Driven Development

Union Budget 2026 marks India’s transition from incentive-driven electronics assembly to ecosystem-led manufacturing. By treating electronics as an integrated value chain, spanning cloud infrastructure, components, logistics, and semiconductors, the Budget signals policy maturity and continuity. The budget reflects India’s broader push toward tech-driven development, positioning digital infrastructure, advanced manufacturing, and innovation as central pillars of its long-term growth strategy. 

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?  

• The AI Power Paradox and Resource Intensity: The rapid scaling of AI data centers is clashing with India’s climate commitments, as high-density GPU clusters demand exponential energy and water for cooling.  
  • This creates a "sustainability friction" where the pursuit of digital sovereignty through sovereign AI models like BharatGen risks depleting local natural resources and straining the national power grid. 
  • Large-scale AI training and data center expansion in India are outstripping renewable energy integration, forcing a continued reliance on coal-based baseload power. 
  • For instance, over 50% of national data centre capacity is concentrated in Mumbai, and rest lies across Bengaluru, Chennai, and Delhi-NCR, all water-stressed metros, raising concerns over cooling water demand, groundwater depletion, and climate-resilient urban planning. 
• Semiconductor Supply Chain "Upstream" Vulnerabilities: Despite the success of the India Semiconductor Mission (ISM) in attracting assembly and testing units, the ecosystem remains dangerously dependent on foreign imports for raw materials like ultrapure water, specialty gases, and silicon wafers.  
  • Without achieving "Upstream Autonomy," Indian fabs remain vulnerable to the same geopolitical supply shocks they were designed to mitigate, potentially turning them into "glorified assembly lines." 
  • India's semiconductor ambitions are currently "mid-stream" heavy, lacking a robust domestic base for the 250+ specialty chemicals required for front-end fabrication. 
  • While 10 ATMP (Assembly, Testing, Marking, and Packaging) projects worth ₹1.60 lakh crore are approved, yet critical upstream equipment (dominated by the US, Japan, and ASML of the Netherlands) and specialty materials like high-purity gases and photoresists remain largely imported, exposing India to supply-chain and geopolitical risks. 
• The "Employability Gap" in Deep-Tech Roles: While India produces the world’s largest number of STEM graduates, a severe "quality-mismatch" exists between traditional IT skills and the specialized requirements of generative AI, quantum computing, and VLSI design.  
  • This talent scarcity is driving hyper-inflation in specialized wages while leaving millions of general engineering graduates underemployed, threatening the "Demographic Dividend" and turning it into a social challenge. 
  • The velocity of tech evolution has surpassed the pace of curriculum reform, creating a "two-speed" labor market where only a tiny elite is deep-tech ready. 
  • Surging demand for cybersecurity professionals in India has led to a supply gap of as much as 30-50% for roles such as cloud security, architecture, and zero trust. (Teamlease Data) 
• DPI and the Expanding Cyber Attack Surface: The unprecedented success of UPI and Aadhaar has centralized national data, creating a high-value "single point of failure" for state-sponsored cyber-adversaries.  
  • As India integrates AI into governance (DPI 2.0), the attack surface expands into hyper-personalized phishing and deepfake-driven financial fraud, which currently outpaces the investigative capacity of local law enforcement. 
  • The "Interconnectedness" of India’s digital stack means a single breach in a minor gateway can cascade into systemic financial or identity risks. 
  • India’s cyber risk landscape is intensifying, with reported cybersecurity incidents more than doubling from 10.29 lakh in 2022 to 22.68 lakh in 2024, while a February 2026 FICCI–EY survey found 51% of firms identifying cyber breaches as their top performance risk, underscoring systemic vulnerabilities in the digital economy. 
• The "Regulatory Interpretation" Chasm : The rollout of the Digital Personal Data Protection (DPDP) Act and its 2025 Rules has created a compliance bottleneck, where small and medium enterprises (SMEs) struggle with the high cost of data localization and "consent-manager" frameworks.  
  • This regulatory complexity risks stifling the "lean startup" culture as firms divert limited capital from R&D toward legal compliance and data-auditing infrastructure. 
  • While the DPDP Act empowers citizens, its implementation lacks "regulatory clarity" for non-metropolitan firms, leading to uneven adoption and high "technical debt." 
  • According to the recent EY report, 71% of Indian enterprises reported that they continue to struggle with interpreting the Act and its newly notified rules. 
• Tier-1-Centric Tech Concentration: Tech-driven development in India remains heavily concentrated in key "Tier-1" hubs, creating a geographic imbalance that inflates urban real estate while leaving other parts of "Bharat" as a mere consumer of services rather than a creator of technology.  
  • This concentration limits the diversity of AI training data and excludes rural entrepreneurs from the high-value manufacturing and design value chains. 
  • The "Silicon Valley of India" model is hitting a ceiling of urban infrastructure collapse, while "BharatNet" has yet to monetize rural connectivity into local manufacturing. 
  • Bengaluru alone accounts for 26–31% of all AI job postings, underscoring how high-value tech creation is concentrated in Tier-1 hubs. This urban clustering inflates real estate and strains infrastructure. 
• E-Waste and the "Hardware Obsolescence" Cycle: The push for electronics manufacturing and the rapid 2-3 year lifecycle of AI-specific hardware (GPUs) is generating a toxic e-waste stream that India’s formal recycling sector is unequipped to handle.  
  • Most "AI-trash" ends up in the informal sector, leading to heavy metal leaching into groundwater, effectively trading long-term environmental health for short-term technological gains. 
  • India lacks a "Circular Tech Economy" policy that mandates hardware longevity or advanced extraction of rare earth minerals from scrapped electronics. 
  • CPCB data shows e-waste generation at 13.98 lakh tonnes in 2024–25, highlighting the widening gap between electronics consumption and effective recycling and circular-economy capacity. 
• Algorithmic Exploitation in the Gig Economy: The booming "Quick Commerce" sector is built on an exclusionary labor model where opaque algorithms ruthlessly dictate "10-minute delivery" targets, effectively stripping workers of social security and physical safety while reducing them to mere data points in a high-pressure logistical grid. 
  • For instance, gig workers staged a nationwide strike in December 2025 against Food delivery app’s unsafe delivery models.  
    • The unions are currently demanding a higher minimum base rate to counter plummeting real wages and unsafe working conditions. 
• Innovation Deficit and IP Ownership Challenges: India's gross expenditure on research and development (R&D) remains stuck at approximately 0.64% of GDP. (Economic Survey 2025-26). 
  • Despite the "Make in India" push, much of the high-value Intellectual Property (IP) for the chips and software manufactured in India is owned by foreign multinationals.  
    • This keeps India in a "Value Trap" where it captures the thin margins of labor and assembly, while the bulk of the profit (royalty and design value) flows back to parent companies in the US or Europe. 
    • India’s tech growth is still primarily "input-driven" (labor/capital) rather than "innovation-driven" (patents/IP), limiting the long-term wealth creation for the domestic economy. 
  • For instance, despite iPhone exports hitting ₹1.5 lakh crore in FY25, India’s "Domestic Value Addition" (DVA) only crossed 20%.  
    • This means ~80 cents of every dollar exported still flows back abroad as payments for imported components and IP royalties. 
  • A rising culture of “pseudo-innovation” in private academia, where imported technologies are rebranded as indigenous to secure grants and rankings, is weakening genuine R&D and distorting India’s innovation ecosystem.  
    • 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 Zones with 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. 

Conclusion 

India’s tech-driven development has clearly moved beyond slogans to systemic capability-building across AI, semiconductors, space, defence, and clean energy. Yet, unresolved structural frictions, upstream dependence, talent gaps, sustainability stress, and urban concentration threaten to cap these gains. The next phase must therefore pivot from scale to depth, from assembly to ownership, and from adoption to innovation. Only by aligning technology with institutional reform, resource security, and inclusivity can India convert its tech momentum into durable global leadership. 

Drishti Mains Question Despite rapid advances in AI, semiconductors, and digital public infrastructure, India faces several structural constraints. Discuss the key challenges and suggest measures to address them.