As the global race to build artificial intelligence infrastructure accelerates, India has offered foreign cloud providers zero taxes until 2047 on services sold outside the country if they run those workloads from Indian data centers — a bid to attract the next wave of AI investment, even as energy shortages and water stress threaten expansion in the South Asian country.
On Sunday, India’s Finance Minister Nirmala Sitharaman was announced (PDF) proposal in the country’s annual budget, which offers tax breaks — essentially zero taxes — on revenue from cloud services sold outside India if those services are run from data centers in the country. Sales to Indian customers should be made through local resellers and taxed domestically, he told parliament. The budget also proposes a 15% plus cost safe harbor for Indian data center operators providing services to affiliated foreign entities.
The announcement comes as US cloud giants such as Amazon, Google and Microsoft scramble to add data center capacity globally to support growing artificial intelligence workloads, with India emerging as an increasingly attractive location for new investment. The country offers a large pool of engineering talent and growing demand for cloud services, and has positioned itself as a key alternative to the US, Europe and parts of Asia for expanding computing infrastructure.
In October, Google said it would invest $15 billion to build an AI hub and expand data center infrastructure in India, its biggest commitment to the country to date, following a $10 billion commitment in 2020. Microsoft followed in December with plans to invest $17.5 billion by 2029 to expand its AI and cloud footprint. funding new data centers, infrastructure and training programs. Amazon also increased its spending in December, saying it would invest an additional $35 billion in India by 2030, bringing its total planned commitment to about $75 billion as it expands its retail and cloud operations.
India’s domestic data center sector is also growing to meet global demand. In November, Digital Connexion, a consortium backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, said it would invest 11 billion dollars by 2030 to develop a 1 gigawatt data center campus with a focus on artificial intelligence in the southern state of Andhra Pradesh. The project, spread over about 400 acres in Visakhapatnam, is one of the largest announced in India and highlights the growing interest from both domestic and global investors in building AI-enabled infrastructure in the country. Separately, Adani Group said in December that it plans to do so invest up to 5 billion dollars alongside Google on its AI data center project in the country.
However, scaling up data center capacity in India may prove difficult as power availability, high electricity costs and water scarcity create basic limitations for power-intensive AI workloads. These challenges could slow construction and increase operating costs for cloud providers.
“The data center announcements signal that they are being treated as a strategic business area and not just back-end infrastructure,” said Rohit Kumar, founding partner of New Delhi-based The Quantum Hub, a public policy and technology consultancy. The push is likely to attract more private investment and strengthen India’s position as a regional data and computing hub, though execution challenges remain on power availability, access to land and state-level licensing, he added.
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Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs, said India’s data center capacity is expected to exceed 2 gigawatts by 2026, from just over 1 gigawatt today, and could expand more than fivefold to exceed 8 gigawatts by $203 billion. While the budget signals a clear intention to accelerate digital infrastructure and cloud computing, Vishnoi said allowing foreign cloud companies to earn profits tax-free until 2047 reflected a “strategic bet on global Big Tech”, even as India could create its own tech champions over the next two decades.
He added that routing services to Indian users through reseller entities could leave smaller domestic players competing for small margins, rather than receiving comparable upstream incentives.
The federal budget also boosted incentives to deepen India’s role in electronics and semiconductor manufacturing as the country seeks to move beyond assembly and gain more value in global supply chains. The federal government will launch a second phase of the India Semiconductor Mission, the finance minister said, which will focus on manufacturing equipment and materials, developing a full stack of indigenous intellectual property chips and strengthening supply chains, while supporting research and training centers to create a skilled workforce.
In addition, the Indian government increased spending on the Electronics Manufacturing Scheme to ₹400 billion (about $4.36 billion), from ₹229.19 billion (about $2.50 billion), after the program — which began in April 2025 — attracted investment pledges more than double Siarathman’s original target.
This program offers incentives tied to incremental production and investment, reimbursing a portion of costs for companies that make key components such as printed circuit boards, camera modules, connectors and other components used in smartphones, servers and data center hardware. By linking payments to actual production rather than upfront subsidies, the program is designed to draw global suppliers deeper into India’s electronics supply chain and reduce reliance on imported components – a long-standing criticism of the country’s manufacturing push.
Along with increasing spending allocations for the electronic components system, the federal budget also proposed a five-year tax exemption from April for foreign companies that supply equipment and tools to toll electronics manufacturers operating in restricted zones. The change is likely to benefit companies including Apple, which relies heavily on contract manufacturing in India and has previously been reported to have sought clarity from New Delhi on the tax treatment of high-tech iPhone production equipment provided to its partners.
The budget also sought to address vulnerabilities in critical minerals such as India he is fighting with tightening of global supplies of rare earth materials used in electric vehicles, electronic devices and defense systems. The finance minister said the federal government would support mineral-rich states like Odisha, Kerala, Andhra Pradesh and Tamil Nadu in setting up special corridors for rare earths to promote mining, processing, research and manufacturing. The move is based on one seven-year incentive plan approved in late 2025 to boost domestic production of rare-earth magnets as access to supplies from China — which dominates global production — has become more limited.
Beyond AI infrastructure and electronics manufacturing, the Indian government has also moved to boost cross-border e-commerce, aiming to help smaller businesses tap into global demand. The finance minister said the existing cap of ₹1 million (about $11,000) per shipment on courier exports will be removed, a move expected to benefit small manufacturers, artisans and start-ups selling abroad through online platforms. The federal government will streamline the handling of rejected and returned shipments using technology, addressing a long-standing problem for exporters, Sitharaman said.
Taken together, the latest moves underline India’s ambition to position itself as a long-term hub for global technology infrastructure, spanning cloud computing, electronics manufacturing and critical minerals. The strategy aims to capitalize on the growing demand for artificial intelligence and changing supply chains. But its success will depend on its execution — from reliable power and water for data centers to sustained support for domestic innovation — as global companies and investors consider whether India can turn policy incentives into sustained leadership in the AI age.
