India’s AI Data Centres and a Long Tax Bet

India is repositioning itself in the global race for computing infrastructure through targeted fiscal policy. The federal government has offered foreign cloud providers a zero-tax regime on offshore services until 2047. The incentive applies only to cloud services sold outside India but operated from facilities within the country. Officials see the move as a direct attempt to place India’s AI data centres at the centre of global computing supply chains.

The proposal was announced in the annual federal budget presented to parliament on Sunday. Finance minister Nirmala Sitharaman said revenues from offshore cloud services would qualify for the exemption. Sales to Indian customers would remain taxable under domestic law. This structure aims to attract foreign capital while protecting local revenue streams tied to India’s AI data centres.

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To prevent revenue leakage, the rules require foreign firms to route domestic sales through Indian resellers. Those reseller entities will remain subject to local taxation. The budget also introduced a transfer-pricing safeguard for operators. Indian data-centre firms may apply a 15 per cent cost-plus margin. The measure seeks to reduce disputes and improve certainty for investors in AI data centres in India.

India’s AI Data Centres: Policy Responds to Global Capacity Pressure

The timing reflects mounting pressure on global cloud capacity driven by AI workloads. Training and inference systems now demand vast and continuous computing power. Major providers are expanding their data centre footprints across regions. Traditional hubs face rising land and energy costs. These constraints are pushing capital toward emerging markets, including India’s AI data centres.

India offers structural advantages that appeal to cloud operators under pressure to expand. The country has a large engineering workforce and a growing digital economy. Cloud adoption continues across business and government services. Demand growth improves utilisation prospects for new facilities. Combined with fiscal incentives, these factors strengthen the case for India’s AI data centres.

The tax holiday also provides long-term policy visibility, which cloud investors demand. Data-centre projects typically operate on multi-decade timelines. Firms require regulatory stability before committing capital at scale. India’s offer extends far beyond conventional incentive windows. The duration is designed to anchor large-scale AI data centres in India permanently.

Global Firms Commit Capital

Global cloud providers have already accelerated investment activity in India. Google announced a $15 billion commitment in October to expand data-centre capacity. The plan includes an AI hub and supporting infrastructure. The company described it as its most significant investment in the country. The announcement reinforced confidence in India’s AI data centres as long-term assets.

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That pledge followed Google’s earlier $10 billion commitment announced in 2020. Together, the investments signal sustained expansion rather than pilot projects. The company is positioning India as a regional computing base. AI workloads sit at the centre of that strategy. Scalability remains critical for India’s AI data centres supporting such plans.

Microsoft followed with its own long-term announcement in December. The company said it would invest $17.5 billion by 2029. Funding will support data centres, infrastructure, and workforce training. Microsoft aims to deepen its AI and cloud footprint across regions. These plans further embed India’s AI data centres into global networks.

Amazon has outlined even larger spending plans tied to cloud expansion. The company said it would invest an additional $35 billion by 2030. That brings its total planned commitment in India close to $75 billion. The investment spans retail and cloud operations. Cloud infrastructure remains central to the growth of India’s AI data centres.

India’s AI Data Centres: Domestic Sector Expands Alongside Multinationals

India’s domestic data-centre industry is scaling alongside multinational investment. Local operators are repositioning to serve international demand. The sector no longer focuses only on domestic clients. Several large projects reflect this strategic shift. These developments strengthen the ecosystem supporting India’s AI data centres.

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In November, Digital Connexion announced plans for a one-gigawatt AI-focused campus. The project is located in Visakhapatnam, Andhra Pradesh. The company estimates a potential investment of $11 billion by 2030. The scale places it among the most significant announced projects. It signals rising ambition in India’s AI data centre development.

The project includes backing from major global and domestic investors. Partners include Reliance Industries, Brookfield affiliates, and Digital Realty Trust. The structure combines local market access with global operating expertise. Such partnerships help manage execution risk. They also improve financing confidence for India’s AI data centre projects.

Other domestic groups are pursuing similar alliances to expand capacity. Adani Group has announced plans to invest alongside Google. The proposed investment could reach $5 billion. The focus remains on AI-ready data-centre infrastructure. These moves reflect growing confidence in the viability of India’s AI data centres.

Infrastructure Challenges Remain Significant

Despite strong momentum, infrastructure constraints remain a key concern. Data centres require uninterrupted electricity and a reliable water supply. India faces challenges in both areas across several regions. These limitations raise operational risks. They could slow the expansion of India’s AI data centres.

Power availability varies significantly across Indian states. Electricity costs remain higher than in some competing markets. Water scarcity already affects several southern and coastal regions. These pressures increase providers’ operating expenses. They may delay the new India AI data centre capacity.

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Cloud providers place a premium on reliability due to global service exposure. Any disruption can affect customers across continents instantly. State governments control land acquisition, utilities, and approvals. Delays at this level add uncertainty to project timelines. Such risks complicate the deployment of India’s AI data centres.

Industry executives have raised these concerns in public forums. They welcome the federal government’s fiscal incentives. However, they emphasise the importance of execution at the state level. Inconsistent approvals and pricing remain problematic. These issues could temper enthusiasm for India’s investment in its AI data centres.

India’s AI Data Centres: Strategic Reclassification Signals Intent

Policy analysts point to a shift in how India views data centres. Authorities no longer treat them as peripheral digital infrastructure. Officials increasingly classify them as strategic national assets. They support finance, security, and digital governance. This reframing elevates India’s AI data centres within policy planning.

The budget clearly reflects this strategic repositioning. Data centres now appear alongside core infrastructure priorities. The approach signals long-term political support for the sector. It also reassures foreign investors assessing risk—such clarity matters for capital-intensive AI data centre projects in India.

Classification alone, however, does not guarantee success. Implementation capacity varies widely across states. Some regions process approvals faster than others. Investors already price these differences into decisions. Uniform execution will shape the growth of India’s AI data centres.

Capacity Projections and Policy Trade-offs

Industry forecasts point to rapid expansion over the next decade. India’s current data centre capacity exceeds 1 gigawatt. Analysts expect it to surpass two gigawatts by 2026. By 2030, capacity could exceed eight gigawatts. Much of this growth will come from India’s AI data centres.

Capital investment may exceed $30 billion during the period. Most new facilities will support AI-driven workloads. These projections assume a stable power supply and policy continuity. They also depend on sustained global demand. Disruptions could alter the path for India’s AI data centres.

The tax holiday has also attracted criticism from some quarters. Foreign firms may earn profits tax-free for decades. Domestic firms receive fewer direct incentives. Smaller operators could face margin pressure. The structure may reshape competition in India’s AI data centre markets.

Manufacturing and Supply Chain Alignment

The budget also addressed electronics manufacturing tied to digital infrastructure. India aims to deepen its role in global supply chains. Policymakers want to move beyond basic assembly operations. The Semiconductor Mission has entered a second phase. These efforts support ecosystems linked to India’s AI data centres.

The new phase focuses on equipment, materials, and chip design capability. It also targets domestic intellectual property development. Training centres will support workforce readiness. Manufacturing policy now aligns with digital infrastructure needs. This integration strengthens resilience for India’s AI data centre operations.

Funding for electronics components manufacturing increased sharply. The allocation rose to ₹400 billion. Incentives are tied to incremental production output. The approach rewards delivery rather than commitments. It supports hardware availability for India AI data centres.

Execution will determine outcomes

The budget also included trade measures affecting digital services. Export limits on courier shipments were removed. The government plans to streamline the process for returned exports. These reforms support cross-border digital commerce. Rising digital trade is increasing demand for AI data centre services in India.

India’s strategy is now explicit and outward-facing. The country wants to host a larger share of global computing infrastructure. AI workloads represent the immediate entry point. Tax incentives provide the initial pull. Execution will determine the success of India’s AI data centres.

Reliable power, water access, and consistent governance remain decisive factors. Investors will judge outcomes rather than policy announcements. Sustained delivery will maintain confidence. Failure will expose structural weaknesses—the future of India. The data centres rest on that balance.