India bets big on AI, but policy questions remain
The data centre push comes with geopolitical risks and no technology transfer provision.
India held the Global South’s largest AI summit this year. It saw delegates from over 100 countries and the announcement of a slew of initiatives – including an AI transition playbook and a platform for sharing impact stories. The message was clear: India wants a seat at the table with the world’s top AI players.
But are its policies keeping pace with that ambition?
At the heart of the government’s AI policy is a tax holiday for companies setting up data centres in India, extending until 2047. At the February summit, the tax holiday drew investment pledges worth about Rs 20 lakh crore for AI and data infrastructure in the country.
The policy requires data centres to be Indian-owned, with foreign firms holding only minority stakes through FDI. It also requires that sales be routed through Indian companies. However, it does not require technology transfer from foreign firms benefiting from the tax holiday, doing little to strengthen India’s own AI capabilities or manufacturing base.
The need for data centres to be Indian-owned point to concerns about data sovereignty, but doesn’t make them less vulnerable to international sanctions, especially as states weaponise data for geopolitical mileage.
The US-Iran conflict has underscored how data centres are becoming geopolitical assets. Iran identified the facilities of major US tech firms as “enemy technology infrastructure” and also struck AWS data centres in the UAE and Bahrain.
The concerns are also environmental. Data centres require vast amounts of electricity and water for cooling, adding pressure to Indian cities already grappling with power shortages, heatwaves and water distress.
Reports have also pointed to the regulatory negligence and weak environmental scrutiny around data centres. A recent Frontline article noted that the Environment Management Plans of a data centre project in Vizag that its “water conservation calculations” and “solid waste management details are the same as those for a shopping mall”.
Two other data centre projects in Andhra Pradesh received their environmental clearances within nine days of filing. The report noted, “These speedy approvals are where the concerns of local community, activists, and experts about the missing transparency and public accountability become most apparent.”
India’s data centre capacity stood at roughly 1 GW by the end of the last fiscal year and is expected to double in the current financial year. But its central policy, the Draft National Data Centre Policy, 2025, is still in the pipeline.
Experts say India’s data centre boom will succeed only if it stays sustainably green. Several Indian states, including Maharashtra and Karnataka, are betting on green data centres with significant budgetary allocations. But whether these initiatives can meaningfully reduce the sector’s environmental footprint remains to be seen.
Meanwhile, the gap between ambition and investment is evident in the Centre’s IndiaAI Mission. Of its Rs 10,000 crore outlay to be utilised over five years, less than Rs 800 crore was used in its first two years. In the FY27 budget, Finance Minister Nirmala Sitharaman even cut the allocations to Rs 1,000 crore from Rs 2,000 crore in 2025.