India has rolled out an ambitious set of fiscal incentives aimed at positioning itself as a global base for artificial intelligence computing, offering foreign cloud service providers zero taxes on overseas revenues through 2047 if their workloads are operated from data centers within the country. The move reflects India’s push to attract the next wave of global AI infrastructure investment, even as challenges around power availability and water resources loom over large-scale expansion.
The proposal was announced on Sunday by finance minister Nirmala Sitharaman as part of the Union Budget. Under the plan, revenues earned from cloud services sold outside India would be exempt from taxation until 2047, provided the associated computing workloads are run from Indian data centers. Services delivered to Indian customers would continue to be taxed domestically and routed through locally incorporated reseller entities, Sitharaman told parliament. The budget also introduces a 15% cost-plus safe harbour for Indian data-center operators providing services to related foreign companies, offering greater certainty on transfer pricing.
The policy comes at a time when global cloud providers are rapidly expanding data-center capacity to support a sharp rise in artificial intelligence workloads. Companies such as Amazon, Google, and Microsoft are racing to deploy computing infrastructure worldwide, and India has emerged as an increasingly attractive destination. The country offers a large pool of engineering talent, rising enterprise demand for cloud services, and a policy environment that seeks to position India as an alternative to the US, Europe, and parts of Asia for compute-intensive investments.
Global technology firms have already made significant financial commitments. In October, Google announced a $15 billion investment to build an AI hub and expand its data-center infrastructure in India, marking its largest commitment in the country to date and building on a $10 billion pledge made in 2020. Microsoft followed in December with plans to invest $17.5 billion by 2029 to expand its AI and cloud footprint, including new data centers, infrastructure, and training initiatives. Amazon has also stepped up spending, stating in December that it would invest an additional $35 billion in India by 2030, bringing its total planned investment in the country to about $75 billion across retail and cloud operations.
India’s domestic data-center sector is scaling up in parallel to meet growing global demand. In November, Digital Connexion — a joint venture backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust — said it would invest $11 billion by 2030 to develop a 1-gigawatt, AI-focused data center campus in the southern state of Andhra Pradesh. The project, spanning around 400 acres in Visakhapatnam, is among the largest announced in India and highlights rising interest from both domestic and international investors in AI-ready infrastructure. Separately, the Adani Group disclosed plans in December to invest up to $5 billion alongside Google in AI data-center projects in the country.
Despite the scale of announced investments and policy support, the rapid expansion of AI infrastructure in India faces structural constraints. Power availability remains uneven across regions, electricity costs are relatively high, and water scarcity presents challenges for cooling large data centers. These issues could slow construction timelines and increase operating costs, particularly as AI workloads significantly raise energy intensity.
“The announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure,” said Rohit Kumar, founding partner of New Delhi-based The Quantum Hub, a public policy and tech consulting firm. The push is likely to attract more private investment and strengthen India’s position as a regional data and compute hub, though execution challenges around power availability, land access, and state-level clearances remain, he added.
