India has announced a two-decade tax exemption for foreign technology companies that use data centers in the country to provide services to overseas customers. The break does not apply to services offered to Indian clients, which will continue to be taxed.
The measure is part of a broader push by New Delhi to attract investment into its fast-growing digital infrastructure sector and position itself as a global hub for artificial intelligence and cloud computing. The government has already offered incentives such as granting infrastructure status to data centers and some states have eased land-use rules to speed development.
Last month India hosted a global AI summit that brought together key industry figures, underscoring New Delhi’s desire to shape the technology’s future and advocate for the interests of developing countries in how AI is built and deployed.
Ambitious investment plans are backing that strategy. The Asia-Pacific region is projected to attract roughly $800 billion in data center investment by 2030, and Indian conglomerates including Reliance Industries, Adani Enterprises and the Tata Group have pledged multibillion-dollar investments in AI-related infrastructure, in some cases partnering with US tech firms. The projects are expected to create thousands of jobs and expand India’s role in cloud and AI services.
But experts warn that hosting data centers is not the same as achieving leadership in AI. Apar Gupta, founding director of the Internet Freedom Foundation, said data centers “add servers and storage, not the ability to build and control advanced AI.” He cautioned that without parallel investment in research, skilled people and Indian datasets, India risks mainly hosting infrastructure for global firms rather than shaping technology or setting the rules.
Divij Joshi, a research fellow at the Overseas Development Institute, echoed that view, noting that “hosting servers does not mean controlling what runs on them.” For India to gain real leverage, Joshi said it would need infrastructure at a scale that makes global AI supply chains dependent on it — a difficult prospect given the lead already held by the US and China. He argued India should prioritize efficient power grids, clear regulations, technology transfer and R&D investment.
Environmental and resource constraints add to the challenge. AI data centers are power-hungry and rely on large amounts of water for cooling high-performance chips, such as GPUs, which can run at very high temperatures. These demands pose a particular problem for India’s water-stressed cities.
Joshi warned that the facilities’ needs for constant electricity, water and stable supplies of materials could clash with local resource realities. He also noted that India’s relatively lax environmental regulations and ability to provide land quickly may be an additional draw for companies, beyond tax incentives.
Jyoti Panday, Asia regional director of the Internet Governance Project, pointed to growing local opposition to data centers globally over power use. She said India’s advantages — cheaper electricity, centralized decision-making and limited local resistance — make it attractive to investors, but added that infrastructure constraints in cities like Mumbai and Chennai are real and could intensify.
Edited by: Srinivas Mazumdaru