Policy Newsletter | May 2026

India moves from Reform to Delivery

As we enter the third year of the current government’s five-year term, the shift in focus from announcing reforms to implementing the institutional frameworks needed for long-term economic growth is discernible. In May, this was the predominant trend across financial regulation, digital governance, AI, advanced manufacturing and cross-border investments. At home, the emphasis was on execution, while India's global engagement continued to prioritize trusted partnerships and resilient supply chains.

A significant macroeconomic development during the month was the Reserve Bank of India's decision to transfer a record surplus of ₹2.69 lakh crore (approximately US$32.3 billion) to the Government for FY 2025-26, substantially exceeding market expectations. Supported by strong foreign exchange operations and investment income, the transfer provides the Government with additional fiscal space at a time when public capital expenditure, manufacturing incentives and digital infrastructure remain central pillars of economic policy. The announcement strengthens the Government's ability to sustain infrastructure spending and industrial policy initiatives while maintaining its medium-term fiscal consolidation path, reinforcing India's position as one of the more stable macroeconomic stories among major emerging markets.

The RBI's Annual Report, released shortly thereafter, also highlighted the next phase of India's digital public infrastructure agenda. The Report noted the continued expansion of Central Bank Digital Currency (CBDC) pilots, including the use of programmable digital rupee tokens for targeted welfare payments. During the pilot phase, selected government agencies tested conditional benefit transfers where funds could be programmed for specified purposes such as the purchase of food grains, fertilizers and other agricultural inputs, thereby reducing leakages and improving traceability. The RBI further confirmed that work continues on cross-border CBDC connectivity with international partners while a dedicated cloud infrastructure for the financial sector is being developed to support future digital financial services.

These developments build upon India's broader digital public infrastructure ecosystem, which today underpins some of the country's largest welfare and public service programmes. Aadhaar-enabled Direct Benefit Transfers facilitate the distribution of subsidies under schemes such as PM-KISAN, the Pradhan Mantri Ujjwala Yojana and MGNREGA, while the Account Aggregator framework is increasingly being integrated into digital lending and financial inclusion initiatives. UPI transactions continued to break records during May, with monthly transaction values approaching ₹30 lakh crore (approximately US$360 billion). The gradual convergence of Aadhaar, UPI, Account Aggregators and CBDC infrastructure points towards a more integrated model of public service delivery and financial intermediation. For financial institutions, technology providers and businesses participating in government-facing digital ecosystems, this evolution raises important legal and regulatory considerations relating to operational resilience, data governance, outsourcing arrangements, cybersecurity compliance and the allocation of contractual risk across increasingly interconnected digital platforms.

Artificial intelligence also moved from policy formulation towards implementation. Building upon the recently announced ₹10,371 crore (approximately US$1.25 billion) India AI Mission, the Government continued work on operationalizing a principle-based governance framework centred around responsible innovation and trusted AI deployment. During May, implementation responsibilities were consolidated under the leadership of the Chief Executive Officer of UIDAI, reflecting a deliberate strategy of leveraging India's experience in building digital public infrastructure for the development of AI-enabled public services. At the state level, Maharashtra approved a dedicated AI Policy targeting approximately ₹10,000 crore (approximately US$1.2 billion) of investment and the creation of nearly 1.5 lakh jobs through AI innovation clusters and centres of excellence. Rather than pursuing a comprehensive standalone AI statute, India appears to be embedding AI-related obligations within existing sectoral frameworks governing financial services, healthcare, telecommunications and consumer protection, creating a more incremental and business-friendly regulatory model.

Alongside AI governance, businesses continue to prepare for the implementation of India's digital data protection regime. While the Digital Personal Data Protection Act established the legislative framework, market attention has increasingly shifted towards the subordinate rules expected to govern consent management, cross-border data transfers and the obligations of significant data fiduciaries. Many organisations are using this interim period to revisit vendor contracts, data processing agreements, internal governance structures and incident response protocols in anticipation of a more structured compliance environment. Data governance is rapidly evolving beyond a technology issue into a core legal and board-level risk management function.

India's manufacturing strategy continues to evolve alongside changes in global supply chains. During May, a significant development in this space was the continued progress of the Tata Group's collaboration with Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC) for the establishment of a semiconductor fabrication facility in Gujarat, following the project's formal approval earlier this year. The project represents one of the cornerstone investments under India's semiconductor strategy and reflects the Government's increasing emphasis on technology transfer and advanced manufacturing capability creation.

Climate regulation is similarly becoming a strategic commercial issue. As the European Union's Carbon Border Adjustment Mechanism progresses towards full implementation, Indian exporters in sectors such as steel, aluminium and cement have continued investing in emissions reporting and third-party verification systems. The Government has continued work on operationalising India's domestic carbon credit market under the Carbon Credit Trading Scheme. As carbon pricing mechanisms become more sophisticated, businesses are increasingly evaluating contractual mechanisms for allocating carbon costs across supply chains while strengthening disclosure and reporting systems to meet customer, financier and regulatory expectations.

India's external economic engagement during May reflected a broader effort to diversify international partnerships and position the country as a trusted participant in global supply chains. Commerce and Industry Minister Piyush Goyal's visit to Canada marked a significant step towards normalising bilateral commercial relations, with both governments expressing confidence that negotiations on an Early Progress Trade Agreement could be concluded before the end of the year. The renewed engagement reflects the strategic importance both countries attach to expanding trade and investment ties despite broader diplomatic challenges.

India also maintained significant momentum in its engagement with Europe during May, with Prime Minister Narendra Modi's multi-country tour of the Netherlands, Sweden, Norway and Italy marking one of the most consequential diplomatic engagements with the region in recent years. Coming on the heels of the political conclusion of the India-EU Free Trade Agreement negotiations earlier this year, the tour reflected a deliberate shift from market access negotiations towards the construction of long-term industrial and technology partnerships.

The visit to the Netherlands was particularly notable from an economic perspective. The two countries elevated their relationship to a Strategic Partnership, announcing cooperation across semiconductors, digital technologies, renewable energy, water management, agriculture, space and innovation. The Sweden and Norway legs of the tour reinforced India's engagement with the Nordic region as a source of advanced technology, green innovation and long-term institutional capital. Discussions at the Third India-Nordic Summit focused on artificial intelligence, digital innovation, renewable energy, sustainable manufacturing, the blue economy and critical technologies.

Prime Minister Modi's visit to Italy culminated in the elevation of bilateral relations to a Special Strategic Partnership. Alongside agreements covering maritime transport, agriculture, education and critical minerals, both governments reaffirmed their commitment to advancing the India-Middle East-Europe Economic Corridor (IMEC) as a long-term platform for trade connectivity and industrial cooperation. The two sides also highlighted opportunities for collaboration in defence manufacturing, clean energy and advanced technology sectors.

At the same time, India continued to deepen its engagement with Southeast Asia. Discussions with Vietnam during the month focused on strengthening cooperation in electronics manufacturing, semiconductors, renewable energy and maritime connectivity under the broader India-ASEAN Comprehensive Strategic Partnership. As multinational companies diversify manufacturing footprints across Asia, policymakers increasingly view India and Vietnam as complementary manufacturing ecosystems capable of supporting more resilient regional supply chains.

These themes were further reinforced at the Shangri-La Dialogue in Singapore, where India's delegation emphasised the importance of a free, open and rules-based Indo-Pacific, secure maritime trade routes and resilient supply chains. While traditionally viewed as a security forum, the Dialogue has increasingly become a platform for discussions on the intersection between geopolitics and economics, including technology partnerships, critical minerals, digital infrastructure and supply chain security.

The continued development of GIFT City similarly reflects India's ambition to establish itself as a regional financial hub. During the month, regulators continued refining the framework for fund management, aircraft leasing and treasury operations within the International Financial Services Centre. As multinational groups increasingly evaluate India as a regional operating base, GIFT City structures are receiving greater attention for global treasury operations, investment holding vehicles, family offices and cross-border fund management platforms.

The month also saw a notable illustration of the changing nature of Indian outbound investment. Sun Pharmaceutical Industries announced its proposed acquisition of U.S.-based Organon in a transaction valued at approximately US$11.75 billion, making it one of the largest overseas acquisitions ever undertaken by an Indian company. The transaction reflects a broader trend in which Indian businesses are increasingly acquiring technology, intellectual property and research capabilities rather than simply expanding into new geographic markets.

This evolution carries important legal implications. The Reserve Bank of India's Overseas Investment framework has significantly modernised the rules governing outbound investment, including through greater flexibility for deferred consideration structures, share swaps and investments through overseas special purpose vehicles.

Taken together, the developments of May point towards a policy environment that is becoming progressively more execution-oriented. The record RBI surplus transfer, continued investment in digital public infrastructure and the operationalisation of frameworks governing AI, semiconductors, carbon markets and outbound investment collectively suggest that policymakers are focusing less on announcing new reforms and more on building the institutional architecture necessary to support long-term economic transformation. Simultaneously, India's engagement with Canada, Europe, Southeast Asia and the wider Indo-Pacific underscores a growing recognition that trade policy, industrial strategy and geopolitical alignment are becoming increasingly interconnected.

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