The Need for AI Datacenters in India: How is Government Policy Encouraging Growth?

Artificial Intelligence (AI) is no longer just a digital innovation. It is an infrastructure revolution in motion. India is witnessing an AI boom with sweeping implications across governance, healthcare, finance, agriculture, and defense. But as AI becomes the bedrock of digital transformation, the need for robust, scalable, and energy-efficient datacenter infrastructure has reached an inflection point.

Let’s explore how India’s policy push, infrastructure strategy, and global partnerships are fueling the rise of AI-focused datacenters – and what that means for the country’s ambition to lead the global AI race.

India’s AI Boom and the Demand for Datacenters

India is projected to add nearly $967 billion to its economy by 2035 through AI adoption, representing a 15% surge in gross value added (GVA), according to NASSCOM and Accenture. But to enable this transformation, the foundation must shift from mere software integration to high-performance compute infrastructure – namely, AI datacenters.

Unlike traditional data centers, AI datacenters are specialized for GPU-intensive workloads, deep learning models, and real-time analytics. With the explosion of generative AI, the demand for such workloads has skyrocketed. McKinsey estimates that 70% of future datacenter growth globally will be driven by AI workloads, and India is expected to mirror this global trend.

Yet, the nation faces a paradox: booming demand vs. lagging capacity.

India’s datacenter footprint, though growing faster than many established players in the APAC region, is still nascent compared to global leaders. In 2024, while India surpassed the milestone of 1 GW, it still falls far behind global leaders like US which boasts a massive 22 GW of data center capacity.

The good news however is policy and investment are aligning in unprecedented ways to bridge this gap. Policy support and private investment are finally moving in sync—creating the perfect foundation for India to not just lead in capacity, but also in sustainable and scalable digital infrastructure.

Government Policies and Incentives Fueling Datacenter Development

India’s emergence as a digital-first economy is a result of cohesive, forward-thinking policy initiatives. The Digital India Program, with over ₹1.13 lakh crore invested, has rapidly digitized public services and governance – creating enormous volumes of data that must be stored and processed locally.

Complementing this, data localization laws enforced by the RBI and MeitY mandate that critical financial and personal data remain within Indian borders, accelerating the demand for robust, secure, and compliant domestic datacenters. This data explosion, coupled with the National AI Strategy (NITI Aayog), which calls for compute infrastructure like AIRAWAT to foster indigenous AI innovation, makes AI-focused datacenters a strategic priority.

To boost this momentum, the government has unlocked significant incentives for infrastructure development. These include tax breaks of up to 10 years under the draft Data Centre Policy 2020, single-window clearances, and land at subsidized rates. Further incentives, targeting the growth of advanced AI and ML datacenters are underway as the government is expected to revisit Data Center Policy 2020.

Moreover, the designation of datacenters as infrastructure assets and permission for 100% FDI under the automatic route signal India’s openness to global investment. The PLI schemes also incentivize domestic hardware production—reducing dependency on imported AI chips and servers, thereby strengthening India’s technological self-reliance.

These initiatives have catalyzed massive projects like the ₹250 crore AI-optimized facility in GIFT City, equipped with 16,000+ NVIDIA H100 GPUs, and Navi Mumbai’s ₹20,000 crore hyperscale campus—India’s largest. Similar growth is visible in Chennai, Hyderabad, Noida, and Tier-2 cities like Patna and Uttarakhand, with investments totaling over ₹50,000 crore expected by 2026.

India, accounting for just 3% of global datacenter capacity despite generating 20% of the world’s data, is rapidly closing this gap. Together, Digital India, data localization, tax incentives, and infrastructure subsidies are not only enabling AI-scale data capabilities but also redefining the nation’s global digital standing.

Strategic Infrastructure Investments Enabling AI Datacenters

India’s AI transformation cannot happen without next-gen infrastructure—particularly around fiber networks, energy availability, and high-performance computing environments.

Infrastructural upgrades in the country presently are targeting three core bottlenecks:

1. Connectivity & Fiber Penetration: Projects like BharatNet Phase II aim to connect 1.5 lakh gram panchayats with high-speed broadband, essential for edge datacenters and last-mile AI integration. Meanwhile, India’s international submarine cable systems are being upgraded to boost latency-sensitive AI workloads across borders.
2. Powering AI with Renewables: AI datacenters can consume up to 50x more energy than traditional ones. India, which aims for 500 GW of renewable capacity by 2030, is encouraging datacenters to co-locate with solar, hydro, and wind farms. For example, Maharashtra and Uttar Pradesh are piloting datacenter parks with dedicated green energy zones.
3. Smart Grid and Cooling Tech: Energy-efficient AI datacenters demand liquid cooling systems, modular design, and AI-optimized power distribution. India is investing in smart grid technologies that allow real-time demand-response integration, reducing downtime and carbon footprint.

These infrastructure initiatives reflect a strategic shift. Datacenters are no longer treated as passive IT assets but as core utilities, as vital as roads or power lines.

Public-Private Partnerships and Global Collaborations

India’s AI datacenter growth story is being co-authored by a robust Public-Private Partnership (PPP) framework and impactful global collaborations. These alliances are catalyzing both infrastructure development and innovation.

For instance, Microsoft Azure and Reliance Jio have teamed up to establish AI-focused data regions in Maharashtra and Gujarat, emphasizing vernacular AI model training and rural skilling programs. Similarly, Google Cloud and Bharti Airtel are co-investing in edge AI datacenters that power India-first applications in agriculture, fintech, and language translation.

In a big move, the Telangana government signed an MoU with CtrlS Datacenters to establish a cutting-edge AI Datacenter cluster in the state with a massive investment of ₹10,000 crores. Meanwhile, NVIDIA, in collaboration with the Indian government through INAI in Telangana, is advancing AI research in public health, smart mobility, and language processing using high-density compute power.

Complementing these efforts are startup ecosystems like T-Hub and AI sandboxes, which democratize access to world-class infrastructure and empower emerging innovators across the country.

India’s Competitive Edge in the Global AI Race

While the US and China dominate current AI infrastructure, India is uniquely positioned to leapfrog in the datacenter economy. Here’s why:

• Vast Talent Pool: India boasts over 400,000 AI professionals, and this number is expected to double by 2026. Government initiatives like FutureSkills Prime and Skill India Digital are rapidly upskilling youth in AI, cloud, and datacenter engineering.
• Cost Advantage: Operational costs for datacenters in India are 30–40% lower than Western counterparts, largely due to affordable land, labor, and power. This makes India an attractive destination for hyperscale AI datacenter investments.
• Growing Domestic AI Use Cases: Unlike many countries that build AI for exports, India’s needs are domestic and diverse—vernacular NLP, agri-analytics, and public health modeling—creating a sustainable demand loop.
• Policy Momentum: Unlike fragmented AI regulations in many parts, India is coalescing its AI and datacenter policies around ethics, access, and affordability. The Digital Personal Data Protection Act (2023) sets the foundation for compliant, secure datacenter operation.

Together, these factors create a techno-strategic opportunity: to make India the world’s go-to hub for low-latency, ethical, affordable AI infrastructure.

Building the Backbone of India’s AI Ambition

India’s ambition to lead in AI is bold and plausible. But without the compute horsepower to train, infer, and deploy models at scale, that ambition risks stalling. AI datacenters are not just an infrastructure requirement, they’re the very backbone of India’s digital future.

As demand for high-performance compute continues to soar, projected globally at 219–298 GW by 2030 – India must act now. Government policies have laid the tracks, infrastructure investments are accelerating, and global players are onboard. What’s needed next is orchestration at scale: cohesive policy execution, continuous upskilling, and an unflinching focus on green, scalable, and secure AI compute.

The datacenter decade has begun. And India is building it brick by brick, byte by byte.