India is counting on new tax breaks to help boost development of data centers, but the strategy’s success depends on the country’s ability to quickly deliver the vast amounts of energy and physical infrastructure to power the facilities.
Despite being among the global leaders in data usage—India has more than 650 million smartphone users and more than 1 billion internet subscribers—the country has lagged behind others in building out data center capacity.
Industry backers have announced more than $150 billion in investments that could close the gap, and India is already among the largest markets for technology firms like
“It’s a gold rush right now,” said Unaise Urfi, a KPMG partner in India.
But the proposals have to contend with persistent challenges for development in India: a lack of land, concerns about power usage, and a government approval process that can be protracted.
“While we’re creating 20% of the world’s data, we are still just about 3-4-5% of the world’s data center space,” said Sunil Gupta, co-founder and CEO of Yotta Data Services Pvt, which runs one of the country’s largest data centers. “That is the gap, and that is the opportunity.”
Race to Build
India is racing to ramp up data center capacity at a time when there is a pushback against them in the US and in Europe.
The latest incentive was a long-term tax break announced in February: Foreign cloud service providers that use India-based data centers for their global operations would not be subject to tax in India until 2047.
The government has also proposed a safe harbor for foreign-owned or operated data centers in India, to ease issues around transfer pricing.
Global companies are looking to use Indian data center capacity to work on products and services for consumers overseas, such as training AI models. The need is also being driven by India’s rules that require certain types of data, especially related to financial transactions, to remain within the country.
The growing demand has sparked a flurry of activity and the tax incentives are seen as a bonus. India currently has small data centers typically with power capacities of 10 to 25 megawatts, but plans are underway to build centers with capacity that’s 10 to 100 times larger.
India’s main competitors in the region are Singapore, an Asia Pacific data center hub that boasts more than 1.4 gigawatt (GW) of capacity, and another fast-growing hub in Malaysia’s Johor region, where capacity is projected to reach close to 6 GW.
India, by contrast, claims just 1.6 GW capacity. That is expected to jump to 10 to 12 GW by 2030-2032, according to Anjani Kumar, a partner for Deloitte India.
And the war in the Middle East could mean more demand, as data center operators there look to expand outside the region.
Power Concerns
That growth requires a comparable expansion of the power to keep the facilities running. Data centers are projected to consume as much as 3% of India’s generated power by 2030, or three times the current amount, according to Deloitte.
India has beefed up its power generation capacity over the last two decades, going from a country of frequent power outages to a power sufficient nation. But outages still occur.
“The issue is not availability of power at India level; it comes in the availability of power at a micro level,” said Kumar.
India’s power companies, owned or co-owned by state governments, are in poor financial health partly because the government requires them to sell power to agricultural and residential users at a subsidized rate. These companies would have to make huge investments to upgrade their transmission lines, many of which at the last mile currently don’t have the capacity to power a 1 GW data center campus.
The issue becomes exaggerated because all of India’s data centers are concentrated in five major cities, including Mumbai and Chennai, amplifying power needs for a handful of regions.
Existing data centers are managing, but it’s unclear if they will be prepared for the growing demands.
“Will the substation be upgraded to cater to that requirement at the right time?” said Manoj Paul, managing director at Equinix India, subsidiary of a Nasdaq-listed data center firm.
Equinix and Yotta have launched efforts to use renewable energy, typically generated in areas far away from their data centers. Equinix relied on solar power to provide 60% of the power it needed for its Mumbai data center for two months this year, according to Paul. “We are doing our bit,” he said.
Paul and others said the industry is engaging with the government on the need to move fast.
“Governments are aware of it and are working on strengthening transmission and the enabling ecosystem,” said Ashish Aggarwal, vice president and head of public policy of the National Association of Software and Service Companies, a trade body.
For now, all data centers maintain power backups through huge diesel generators, which has implications for operational expenditure and the environment, KPMG said in a report.
More Hurdles
The prospect of building power plants to specifically serve the data centers—a common practice in the US—is less viable in India for other reasons: a lack of land, and longstanding governmental hurdles for new development.
Large parcels of available land are rare near the busy cities that have become data center magnets. More typically, property holdings are highly fragmented, with tiny plots, multiple owners and unclear titles, making them difficult to buy.
Industry insiders are hopeful that the local authorities will find solutions. Several state governments have announced new data center incentives and subsidies in the last five years. The western state of Maharashtra, which includes Mumbai and has a high number of data centers, is giving subsidized power and has granted some duty exemptions.
But the challenge of getting governmental approvals persists. A new data center needs more than 40 approvals before it can be operational. Industry groups are pushing for easier clearances and relaxed rules.
“A data center which otherwise that can be launched in 15-18 months, can take anywhere from 24 to 30 months due to multiplicity, latency, and complexity of these approvals,” Yotta said in a 2024 statement to India’s telecom regulator.
Environmental Concerns
Like elsewhere in the world, India also faces concerns about the huge amounts of water needed to cool data centers. Every year, the country sets new climate records, with large swaths of India deemed at very high risk from extreme heat.
“More data centres mean more freshwater diversion for cooling, often coinciding with India’s recurrent water shortages and summer heat stress,” according to the Council on Energy, Environment and Water, a policy research firm in Delhi.
Industry analysts say they are mindful of India’s water issues, and are incorporating new technologies to minimize the use of water for cooling.
Equinix, which has a center in Chennai—a city plagued by chronic water shortages—says 100% of its data centers are air-cooled, which requires power but not water.
It’s unclear if others are willing to pay for that option. Meanwhile, the data center proposals have also drawn pushback from local communities and activists.
In the southern state of Andhra Pradesh, one group called Google’s upcoming gigawatt-scale data center “a looming environmental and economic disaster.” In the neighboring state of Telangana, where Microsoft is building a data center, villagers have accused the tech company and others of polluting an area lake and tributaries.
Asked about the Andhra Pradesh project, a Google spokesperson said the company is collaborating “with local partners to build clean energy-backed infrastructure.”
Microsoft, through a spokesperson, disputed claims it had encroached on a lake or improperly disposed of waste and said it is working with relevant authorities to address the concerns in Telangana.
But those pockets of protests aren’t dimming the momentum of India’s data center build-out.
One morning this month, workers in yellow hard hats toiled away to build the top floor of Yotta’s new eight-story data center in Tusiana village, just over an hour’s drive from New Delhi.
This will be Yotta’s second data center building within the campus, which is designed to have six buildings and sprawls over 20 acres, or roughly 15 football fields.
“We’re rushing to scale up our capacity in a significant way,” said Gupta.
To contact the reporter on this story: Shefali Anand in Delhi at correspondents@bloomberglaw.com
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