The data centre rush: India must ensure that investment is sustainable

The AI Impact Summit in New Delhi last week was accompanied by a flurry of investment promises. Reliance Industries has promised to put $110 billion in artificial intelligence (AI) and data infrastructure, while Adani Enterprises has said it will invest $100 billion in green energy-powered data centres over the next decade. Some foreign firms too have said they intend to have large capital investment in the sector in India and elsewhere in the Global South; Microsoft, for example, had promised $17.5 billion last year and has indicated now that it plans a $50 billion commitment to developing-world AI infrastructure. This is, at least in part, a response to some deep-seated structural factors. India is already one of the world’s largest consumers of data, and that is growing in double digits annually. As countries move towards enforcing certain aspects of data protection and sovereignty, it makes sense to ensure that local data centres are built so as to meet regulatory requirements, current and future.

 

In an economy that is broadly starved of private-sector investment, the figures being tossed around for this sector will come as a welcome relief. This is presumably why the Union Budget for 2026-27 proposed a 20-year tax holiday for firms using Cloud capacity in India. It is vital that the broader private sector in India also ensure that they think hard about how they can effectively use this infrastructure if and when it is developed. The benefits should not flow to foreign firms alone.

 

That said, there are reasonable questions that must be asked alongside this understandable enthusiasm. The availability of water and electricity, for example, looms large in any discussion on data centres. Expenditure on power supply can represent between 20 per cent and 40 per cent of the operating costs of a data centre; India has to ensure that it has competitive power tariffs or that captive power is easy to set up and maintain. According to the Institute for Energy Economics and Financial Analysis, growth in data-centre capacity within India from 1.4 Gw to 9 Gw by 2030 would consume 3 per cent of India’s total power. That is a significant increase in industrial-power demand. Water consumption will be an even bigger challenge, given that there are chronic disputes in many areas between industrial, urban, and agricultural users of water.

 

Various states, including Maharashtra and Tamil Nadu, have sought to attract data centres to India. It is vital, however, to remember that large-scale investment will fructify only if such expenditure is seen to be profitable. Some large global companies — possible buyers of compute capacity, from Reliance and Adani — have already scaled up their investment so much over the past year that analysts are beginning to question when and how they will make a sufficient return. It is crucial that both the financial sector, including state-controlled banks, and the government in general remain mindful of the potential risks involved. These should be left to those who have the cash on hand to take bets worth tens of billions of dollars. It is also important to ensure that this does not wind up leading to an economic dependence on any one geography — whether the countries providing the chips and critical minerals that go into data centres, or the one hosting the companies that buy capacity. This investment is a gain for the Indian economy. However, it will be important to ensure that it is sustainable.