India's untapped data goldmine is a key strategic asset for India

Why expanding domestic data capacity is not just an economic need, but a strategic asset for India's technological, geopolitical, and security resilience

India leads the world in digital data generation, with 450 million Facebook users, 540 million WhatsApp users, and 490 million YouTube users — the highest for each platform globally. Additionally, 82.6 per cent of email users in the country use Gmail, and 360 million are on Instagram. Despite producing an estimated 20 per cent of the world’s data, India lacks the infrastructure to fully harness this resource.

 

Countries capitalise on their natural strengths: China controls 70-80 per cent of rare earth processing, Australia dominates iron ore mining, and Chile leads copper production. Given India’s share of global data generation, it should have at least 20 per cent of data centre capacity — yet, it has under 2 per cent. This gap is a strategic and economic missed opportunity India must bridge to harness its digital growth potential.

 

Data centres are crucial drivers of economic growth, creating multiplier effects across industries and attracting foreign direct investment (FDI). They support sectors like e-commerce, fintech, and artificial intelligence by enabling secure, high-speed data processing while ensuring regulatory compliance. A 2017 MIT study found that data-driven firms achieved 4 per cent higher productivity and 6 per cent greater profitability. Generative AI has exponentially increased data’s value, with McKinsey estimating it could add between $2.6 trillion and $4.4 trillion to the global economy every year, with productivity gains of up to 40 per cent. Data now influences national security, economic power, and global competitiveness. As nations and corporations compete for control over data storage, flow, and use, mastering data infrastructure is key to future leadership. For India, expanding domestic data centre capacity is not just an economic necessity — it is a strategic asset shaping the country’s technological, geopolitical, and security resilience.

 

Not only is the value of data growing exponentially, but so is its quantum. McKinsey projects that global data centre capacity—currently 59 Gw in terms of power consumption —will triple by 2030 to 171–219 Gw, growing at a compound annual growth rate of 19–27 per cent. India’s current data centre capacity is around 900 Mw and is expected to double in the next five years, spurred by AI-driven applications and the demand for local content delivery networks by global platforms like Facebook and YouTube. Yet, India’s data centre footprint will remain a fraction of its potential, barely keeping pace with global expansion.

 

If India builds data centre infrastructure proportional to its data generation, it would need to create 40 Gw of capacity by 2030. This would require an estimated $400 billion investment, increasing capital expenditure on infrastructure by 20 per cent. It could generate 1 to 2 million direct jobs, with up to three times as many indirect jobs. Additionally, the construction industry would experience a significant boost, driven by the demand for an additional 800 million square feet of space.

 

Favourable conditions now exist to shape a robust policy framework that can drive a transformative expansion of India’s data centre capacity.  Infrastructure challenges, such as the lack of undersea cables, cable landing stations, unreliable power, and limited investment capacity, are no longer major obstacles. The Digital Personal Data Protection Act ensures data security in line with global standards. India permits 100 per cent FDI for data centres. Global internet giants are increasingly localising content and services. India’s vast, employable workforce further strengthens its advantage in developing this sector.

 

Mandating data localisation for internet companies in India may appear to be a solution for building data centre capacity, but it comes with notable drawbacks. It could trigger reciprocal restrictions on Indian firms in other markets, harming India’s IT services industry. Localisation mandate may raise service prices for Indian users. Smaller companies may even exit the Indian market, reducing competition. Also, data localisation mandate might be perceived as a trade barrier, leading to legal disputes. The United States and China, global leaders in data centre infrastructure, have built and expanded their industries through substantial government support. In the US, states offer incentives such as tax breaks (including sales, property, and income tax), accelerated cost recovery, renewable energy credits, low electricity rates, as well as grants and subsidies. In China, data centres are national key projects, receiving support through reduced corporate taxes, cash subsidies, ultra-low electricity tariffs, and green data centre incentives. 

 

India’s data centre industry offers even greater economic benefits than manufacturing and deserves equally strong incentives. Electronics manufacturing benefits from schemes like production-linked incentive (PLI) and design-linked incentive, along with subsidies for manufacturing clusters and semiconductor fabs. Following the Central government’s lead, state governments provide additional incentives, including capital subsidies, land benefits, electricity duty exemptions, and value-added tax refunds. Extending similar or stronger support to data centres can unlock massive investments, job creation, and technological advancements, positioning India as the most attractive destination for data infrastructure. Incentives could include a 10-year tax holiday, Customs duty exemptions on imported data centre equipment, reducing goods and services tax to 5 per cent for data centres and related equipment, PLI support, and concessional loans for green facilities. Reliable power at subsidised rates and enabling direct purchases from discoms would reduce power costs. Cities like Dehradun, Chandigarh, or Shimla, where cooling costs would be significantly reduced, could be developed as data centre hubs with dedicated fibre corridors. 

 

Data centres hold immense, yet untapped, potential. As annual data generation now exceeds the sum of all data produced in prior human history, their importance is only set to grow. While India may have been late to invest in data infrastructure, it’s not too late. As the Chinese proverb goes: “The best time to plant a tree was twenty years ago; the second best time is now.”

 

  The author is a former defence secretary and currently distinguished visiting professor at IIT Kanpur