Daijiworld Media Network - New Delhi
New Delhi, Feb 2: In a major push to position India as a global hub for artificial intelligence infrastructure, the Union government has offered foreign cloud service providers a zero-tax regime until 2047 on services sold outside the country, provided the workloads are run from data centres located in India.
Announcing the proposal in the Union Budget on Sunday, Finance Minister Nirmala Sitharaman said revenues earned from cloud services delivered to overseas customers would be exempt from taxes if operated from Indian data centres. However, services sold to Indian customers would need to be routed through locally incorporated resellers and taxed within the country. The budget also proposed a 15 per cent cost-plus safe harbour for Indian data centre operators offering services to related foreign entities.
The move comes amid a global race led by US tech giants such as Amazon, Google and Microsoft to expand data centre capacity to support the explosive growth of artificial intelligence workloads. India has emerged as a key destination due to its large engineering talent pool, growing digital demand and strategic positioning as an alternative to the US, Europe and other Asian markets.
Google had announced in October an investment of $15 billion to expand AI and data centre infrastructure in India, its largest commitment so far, following an earlier $10 billion pledge in 2020. Microsoft followed in December with plans to invest $17.5 billion by 2029 to scale up its AI and cloud presence. Amazon has also committed to invest an additional $35 billion by 2030, taking its total planned investment in India to about $75 billion.
Domestic players are also ramping up capacity. In November, Digital Connexion, backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, announced plans to invest $11 billion by 2030 to develop a one-gigawatt AI-focused data centre campus in Visakhapatnam, Andhra Pradesh. Separately, the Adani Group said it would invest up to $5 billion alongside Google in AI data centre projects in India.
Despite strong investor interest, challenges remain. Power shortages, high electricity costs and water scarcity pose significant constraints for energy-intensive AI data centres, potentially slowing expansion and increasing operational costs.
“These announcements signal that data centres are being treated as a strategic sector rather than just back-end infrastructure,” said Rohit Kumar, founding partner of New Delhi-based policy consulting firm The Quantum Hub. While the incentives are expected to attract private investment and strengthen India’s regional standing, he noted that issues related to power availability, land access and state-level clearances could affect execution.
Sagar Vishnoi, co-founder of think tank Future Shift Labs, said India’s data centre power capacity could exceed 2 gigawatts by 2026 and rise beyond 8 gigawatts by 2030, driven by investments of over $30 billion. However, he cautioned that allowing foreign cloud firms to earn tax-free profits until 2047 represents a strategic bet on global Big Tech, even as domestic players may be left competing on thin margins.
Beyond AI infrastructure, the budget also reinforced India’s push in electronics and semiconductor manufacturing. Sitharaman announced a second phase of the India Semiconductor Mission, focused on equipment, materials, domestic chip intellectual property and workforce development. The outlay for the Electronics Components Manufacturing Scheme was raised to ?400 billion, following strong investor response.
The budget further proposed tax exemptions for foreign suppliers of electronics manufacturing equipment and announced initiatives to strengthen rare-earth mineral supply chains and boost cross-border e-commerce exports.
Overall, the measures underline India’s ambition to emerge as a long-term global technology hub, though their success will depend on effective execution and infrastructure readiness in the years ahead.