Technopolitik Special Edition: The Budget Breakdown
In this special edition of Technopolitik, the Takshashila team analyses the 2025-26 Union Budget.
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This edition of Technopolitik is an analysis of the 2025-2026 Indian Union Budget that was presented on the 1st of February by Finance Minister Nirmala Sitharaman. The budget comes at a time of rising global competition in emerging technologies, shifting geopolitical ties and increasing national secuurity concerns related to cyber threats, AI and semiconductor dependancies. It focuses on various technologies and areas relevant to tech geopolitics that figure in the budget. This year’s budget highlights significant allocations toward technology sectors and a commitment towards focusing on indigenising manufacturing of more and more technologies as well as the prioritisation of adapting more advanced technologies and leaving behind older tech for a new world.
Semiconductors
The chart below shows the expenditure on various semiconductor-related programmes over the last four years. The big picture view first: the government would have used up 14 per cent of its total programme budget (₹76000 crore) by the end of the current financial year. Additionally, it plans to spend ₹7000cr in the forthcoming year.
Zooming in on the expenditure composition:
The government’s plan to revive the state-owned fabrication unit, SCL Mohali, saw no progress this year. As against the budgeted sum of ₹900 cr this year, only ₹11 cr was spent. Nevertheless, the government has planned another attempt costing ₹400 crore this year. The repeated underspending suggests that the revival plan has stalled after some initial moves, which saw the MeitY take charge of SCL from the Department of Space.
OSAT (assembly and test) plants seem to have progressed well. Total spending incurred by the government thus far has been ₹3144 crore, while another ₹3900 cr has been budgeted for this year.
Construction at India’s sole CMOS fabrication unit at Dholera has begun. That accounted for ₹1200 crore this year, with another ₹2500 crore budgeted for the upcoming financial year.
The sad news concerns a sector where India’s comparative advantage lies, i.e., fabless firms. The Design-linked incentive promised to support 100 start-ups in their go-to-market strategy, but the budgetary allocations show how far off the target the scheme is. As against the budgeted expenditure of ₹400 crore over the last two years, only ₹135 crore has been spent. Another ₹200 crore expenditure is planned this year. The reasons for tardiness include strict provisions that put firms raising substantial foreign money out of contention, confusion on the government’s right to the company’s intellectual property, and entrusting a government company, which is also a player in this domain, as the nodal regulator of this scheme. We have outlined many of these problems here.
The display fab scheme hasn’t attracted any interest, and the government hasn’t budgeted any amount for the upcoming year. I have long argued that display fabs are not strategic, and spending taxpayer money on them to reduce imports from China is a wasteful exercise. Good riddance if the government stops wasting time, money, and effort here.
Space
Regarding India's space budget, this year’s allocation shows an increase of 2.86% from last year, moving from 13,042.75 to 13,416.20 crores. While this is a modest increase, it is important to note that it is not a reduction. This is indicative of the government's consistent focus on the space sector.
To prove this point further, the budget speech outlined two key developments. The first is the National Geospatial Mission - a project to create digital maps of India with other useful geographic data. This initiative will integrate with PM Gati Shakti - the national connectivity infrastructure plan. The idea is to modernise land records, city planning, and infrastructure projects. Logically, the right time for such a mission was over a decade ago. However, it is better late than never, and its announcement now marks a positive shift in policy.
On the tax front, the government has eliminated customs duties on critical space-related equipment. This applies to satellite ground equipment (including spare parts) and materials for rocket manufacturing and launches. Another welcome development, this will boost India's domestic space manufacturing capabilities.
Nuclear Energy
The Finance Minister’s budget speech included a commitment to pursue amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act (CLNDA). The CLNDA, which was passed in 2010, is often cited as a major reason why foreign players have hesitated to build nuclear power plants in India.
The move appears to be part of a broader push for nuclear energy. The Finance Minister said development of “at least 100 GW of nuclear energy by 2047 is essential for our energy transition efforts” and that this would require private sector participation.
The speech also announced the launch of a Nuclear Energy Mission that would receive an outlay of ₹20,000 crore to build five small modular reactors (SMRs) by 2033. SMRs are reactors with capacity of up to 300 MWe, according to the International Atomic Energy Agency. Though still an experimental technology, SMRs are thought to require less investments than traditional reactors and have the potential to be scaled up when needed by adding new modules. SMRs are also expected to be safer to operate.
The National Quantum Mission
India's National Quantum Mission (NQM) remains an area of attention, with a budget of Rs. 600 Cr for 2025, up from Rs. 427 Cr last year, an increase of 40% in the allocation. The revised estimate for the NQM was Rs. 86 Cr in 2024, indicating that about 20% of the allocated budget was spent.
The focus for the NQM this year will be on scaling up the 4 newly established thematic hubs focused on quantum computing (IISC, Bangalore), quantum communication (IIT, Madras), Quantum Sensing and Metrology (IIT, Bombay) and Quantum Materials and Devices (IIT, Delhi).
A key part of the focus for the mission is likely to be on international collaborations, with up to 5 such partnerships targeted for the year. In addition, the NQM will be support the creation of teaching labs related to the newly developed under-graduate program in quantum technology by the AICTE and DST.
Artificial Intelligence
The 2025-26 budget has earmarked 2,000 crores towards the IndiaAI mission out of the total 10,372 crores budgeted for five years. The expenditure towards the mission in the previous financial year has been revised to 173 crores from the 552 crores budgeted.
A recent response to a question in the Lok Sabha details how the budgeted amount of 10,372 crores is allocated across the seven pillars of the IndiaAI mission. A majority of the budget, around 44%, is directed toward building domestic computing capacity. An innovation centre and startup financing each account for around 19% of the budget. The remaining funds are divided among future skilling, an application development initiative, a datasets platform, and a safe and trusted AI initiative.
Under the compute pillar, bids have been received for empanelment from ten vendors whose submissions qualified for the technical requirements, and the results are expected any day now. The ten vendors are CMS Computers India Pvt Ltd, Ctrls Datacenters Ltd, E2E Networks Limited, Jio Platforms Limited, Locuz Enterprise Solutions Limited, NxtGen Datacenter and Cloud Technologies Private Limited, Orient Technologies Limited, Tata Communications Limited, Vensysco Technologies Limited, and Yotta Data Services Private Limited.
IndiaAI will decide the authorised end users from academia, MSMEs, startups, the research community, government entities, and public sector agencies. These users are to receive services from the empanelled vendors at prices established during the selection process.
We have been arguing (here and here) that this process is unlikely to be efficient for price discovery or offering competitive computing services. An alternative could be for selected users to be given compute credits that they can use to purchase computing services of their choice from a competitive market.
In the output and outcomes framework, the innovation centres (IndiaAI Labs) and startup financing (deep startups) have clear indicators. However, the framework does not explicitly mention the compute and datasets pillars. They might be the three industry-led projects and 20 AI curation units, respectively.
Lastly, the pro-innovation stance of the IndiaAI mission and the proposed interim light-touch AI regulations, for which consultations are ongoing, stand in stark contrast to the grim outlook regarding the impact of AI on labour as covered in the economic survey. The caution is that “The corporate sector has to display a high degree of social responsibility. Although the impact of AI on labour will be felt across the world, the problem is magnified for India, given its size and its relatively low per capita income. If companies do not optimise the introduction of AI over a longer horizon and do not handle it with sensitivity, the demand for policy intervention and the demand on fiscal resources to compensate will be irresistible. The state, in turn, has to resort to taxation of profits generated from the replacement of labour with technology to mobilise those resources, as the IMF suggested in its paper. It will leave everyone worse off and the country’s growth potential will suffer, as a result. Utilising this window of time available during the nascent stages of AI to build robust institutions can ensure that we, as a nation, are well placed to minimise the costs as much as possible.” The disparity highlights the contrasting priorities between the two ministries in dealing with AI.
Cybersecurity
Cybersecurity is no longer an elite business that afflicts nation-states or big corporations. In India, in 2024, it democratised and impacted one and all. Press 1 on an IVR call and lose lakhs of rupees or pick-up a random video call and be threatened of consequences by fake law enforcement personnel — the cyber thieves found creative ways of duping Indian citizens across the class, caste and religious divide. The Indian Cyber Crime Coordination Centre reports a whopping figure of INR 11,333 crore being lost to cyber fraud in just the first nine months of 2024. From PM Modi to President Murmu, the highest offices took note and warned about this menace. Given this heightened attention, naturally, it was expected that the budgetary allocations for all things cyber will go up in 2025-26. Well, they did, but only slightly. Whether this increased allocation is sufficient to address rising cybercrime has to be seen. Among key allocations, the Computer Emergency Response Team - India got 255 crore as opposed to 238 crore (budgeted 2024-25) and 241 crore (revised 2024-25). Cyber security projects got 782 crore as opposed to 759 crore (budgeted 2024-25) and 322 (revised 2024-25). The National Mission on Interdisciplinary Cyber Physical Systems got 900 crore as opposed to 564.46 crore (budgeted 2024-25) and 815 (revised 2024-25).
The analysis was a joint effort of the Takshashila team.