In Focus: India’s Data Centre Ambitions Must Contend with Operational Realities.
by Kaushiki Kaushalendra Singh
“Data is the new oil.” ~Clive Humby
Every industry today is engaged in collecting, storing, and analysing vast volumes of information to drive decisions, optimise operations, and shape future strategies. But where does all this data actually reside? While “the cloud” is often described as an abstract digital space, it is grounded in physical infrastructure, vast facilities that depend on significant energy resources. Across the world, countries are racing to build multi-megawatt and gigawatt-scale Data Centres. The United States currently leads this race, hosting nearly 45% of the world’s data centre capacity.
India’s digital economy is also growing at an unprecedented scale, and its capacity is projected to reach nearly 6.5 GW by 2030, positioning the country as one of the fastest-growing data centre markets globally. These facilities, however, are highly dependent on power availability. Higher capacity enables greater computing and storage capability, but also creates enormous requirements for electricity, cooling systems, and land. This has led to serious regulatory and environmental concerns surrounding the rapidly emerging industry. This piece examines the Indian ecosystem, the policy incentives being offered by various states, and the operational challenges associated with setting up Data Centres.
India’s Data Centre Ecosystem: State Policies and Incentives For the Industry
In its Draft Data Centre Policy of 2020, India positioned itself as a global hub by proposing easier land allocation, single-window clearances, subsidised power, and fiscal incentives. The policy aimed to promote domestic data storage and cloud infrastructure, and sought to attract investments worth Rs 3 lakh crore over five years. It also recommended setting up specialised Data Centre Economic Zones (DCEZs) and encouraged states to establish dedicated parks. However, the draft policy is yet to be notified. The Indian Government has considered recognising them as an “Essential Service” under the Essential Services Maintenance Act, 1968 (ESMA), highlighting the criticality of digital infrastructure.
India’s data centre ecosystem has evolved from small enterprise hosting facilities to hyperscale infrastructure supporting cloud computing, AI workloads, streaming services, financial services, and digital public infrastructure. The launch of India’s first commercial concurrently maintainable Data Centres by Sify Technologies in Vashi, Navi Mumbai, in September 2000 marked an important milestone in the country’s digital infrastructure journey. Since then, the ecosystem has expanded rapidly, particularly in Mumbai, Chennai, Hyderabad, Bengaluru, Delhi-NCR, Pune, and increasingly in Visakhapatnam. However, India does not have a unified national law; instead, the ecosystem combines central digital infrastructure with state-level initiatives.
Indian States that have either notified Data Centres Policy or regulate them through broader IT or Industrial Policies (As of May, 2026)
Currently, India is witnessing a shift from traditional colocation facilities to AI-oriented mega campuses capable of supporting extremely high power densities. In October 2025, Google announced a $15 billion investment in an Artificial Intelligence Data Centres project in Andhra Pradesh, while in December, Microsoft announced a $17.5 billion investment until 2030, to build AI-focused Data Centres in India. Additionally, Amazon has announced a $35 billion investment in India by 2030 to boost its artificial intelligence capabilities and increase exports. Various state governments have also introduced numerous incentives to attract investors and industry players with favourable terms.
Operational and Practical Concerns
A key challenge for India is that state governments are promising hyperscale investments without enhancing their readiness in power, water, and transmission infrastructure, or skilled workforce. Data Centres require continuous high-quality power, but several Indian states still struggle with industrial reliability, peak deficits, and distribution constraints. At least 15 Indian States have notified their policies to regulate the Data Centre ecosystem. The incentives offered by the various States appear to follow a similar framework and focus on four key aspects: Energy subsidies, fiscal, non-fiscal incentives and infrastructure. The table below lists out incentives offered by Data Centres in the states of Tamil Nadu, Telangana, Odisha and Uttar Pradesh.
Note: The table provides an indicative overview of incentives offered by various State Governments and is not exhaustive; Source: Tamil Nadu Data Centre Policy 2021, Telangana Data Centre Policy 2016, Odisha Data Centre Policy 2022, & Uttar Pradesh Data Centre Policy 2021
While the incentives offered by various Indian states appear attractive, it is important to contextualise them against the infrastructural, operational, and resource constraints. Let us consider the two case studies below. The policies of both UP and Tamil Nadu reveal a widening disconnect between policy ambitions and the everyday operational realities.
Tamil Nadu
Under the Tamil Nadu Data Centre Policy, 2021, the state aspires to emerge as the “data centre capital”, strategically highlighting its proximity to submarine cable connections and coastal location. However, there are multiple operational challenges for the Government to consider to host hyperscalers. Chennai has been experiencing severe water crises, which raises questions about how the state would ensure a continuous supply of water required for cooling these facilities. Additionally, the rising temperatures have increased energy demand and operating costs for server farms. Peak demand during the summer goes up to 21,000 megawatts, while daily consumption often exceeds 450 million units. Artificial Intelligence-driven Data Centre facilities, which require more power and cooling than conventional data centres, will further burden the already high energy demand. Thus, without major grid expansion, robust integration of renewable energy sources, water recycling systems and bolstering climate resilient infrastructure, Tamil Nadu’s hyperscale ambitions may end up mired in operational constraints, missing the opportunity to emerge as a significant player in the industry.
Uttar Pradesh
Uttar Pradesh has positioned Noida and Greater Noida as India’s largest hyperscaler corridor under the Uttar Pradesh Data Centre Policy 2021. The State announced its ambitions to attract investments worth Rs. 20,000 crores to build high-capacity facilities for hyperscalers. The targets and aspirations of the State Government require reconciliation with the logistical constraints, such as power reliability concerns, lack of urban infrastructure, and regulatory challenges. The relevant departments of the Government of UP are struggling to secure and provide industrial land at the required pace. It has also been reported that while more than 4 lakh hectares had been notified for industrial and urban development across Noida, Greater Noida, and YEIDA regions, only about 40,000 hectares had actually been acquired, leaving large portions legally or administratively inaccessible. Additionally, externalities of resource constraints, such as energy & water scarcity, have already begun surfacing. Following the inauguration of the Yotta Data Centre Park in 2022, nearly 2,000 surrounding villages reportedly faced acute water scarcity, highlighting how hyperscales can intensify pressure on already strained water and power systems and why robust risk assessments are essential. The first step towards such assessments is understanding and accounting for the practical constraints that may ultimately determine the sustainability of hyperscale expansion.
Building on the Momentum
India’s aspirations to emerge as a global data centre capital must be grounded in a more sustainable and operationally resilient model. The IEA estimates that globally, ~20% of planned data centre projects may face delays because electricity grids are ill-equipped to absorb concentrated new demand. The energy consumption of data centres is estimated to have reached around 415 terawatt hours (TWh), or about 1.5% of the total global electricity consumption in 2024. In fact, the demand is projected to double to reach around 945 TWh by 2030. This is the case when only 92% of the world’s population now has basic access to electricity, leaving over 666 million people without access. Some reports also allude to the massive dependence on water and the high levels of consumption. For instance, some of these facilities require up to 18.92 lakh litres of water every day to support the expansive hardware units installed for their operations. While state policies have successfully attracted investor interest and accelerated infrastructure announcements, long-term viability will depend on whether hyperscalers’ expansion can be sustained at this scale.
Moving forward, greater emphasis will need to be placed on renewable energy integration, climate-resilient infrastructure, water-efficient cooling systems, transmission readiness, and integrated urban planning. The next phase of India’s data centre growth will ultimately be defined not by the scale of policy announcements, but by the country’s ability to build infrastructure ecosystems capable of sustaining them.
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