India’s National Democratic Alliance government under Prime Minister Narendra Modi is betting big on making India the global hub for artificial intelligence (AI). They have enacted an unprecedented zero-tax incentive for foreign cloud providers, running through 2047. This legislation enables these firms to market and sell their services beyond India, all while operating the same workloads from Indian-based data centers, a step lauded as a game changer by Finance Minister Nirmala Sitharaman when she announced it during the country’s annual budget speech.
The program aims to attract the next big wave of AI computing investment. This strategy plays to India’s strength in engineering talent and the growing cloud demand from enterprises in adopting public cloud services. India wants to foster a competitive development environment so has exempted foreign cloud providers from paying taxes. This shift is designed to better attract foreign firms to establish operations on its soil.
The ambitious plan faces several challenges. India now must seize the opportunity presented by its current challenges to expand its data center capacity. For them, the key problems are unstable electricity, expensive electricity, and lack of water. Despite these hurdles, projections indicate that the country’s total data-center power capacity will surpass 2 gigawatts by 2026. By 2030, it’s on track to exceed 8 gigawatts.
As India looks to cement its role in the AI and tech ecosystem, it intends to release a second stage of its Semiconductor Mission. This joint initiative should prioritize domestic production of equipment and materials, full-stack domestic chip intellectual property development, and supply chain enhancement. It follows the government’s approval of a seven-year incentive program to increase domestic production of rare-earth magnets.
In addition to these measures, India has removed the existing ₹1 million (approximately $11,000) value cap per consignment on courier exports. This amendment is meant to level the playing field for small manufacturers, artisans, and fledgling startups. They’ll all profit from improved access to global markets through expanded ecommerce channels.
It led to the redrafting of guidelines to assist mineral-rich states such as Odisha, Kerala, Andhra Pradesh and Tamil Nadu. They’re trying to create designated rare-earth corridors through these areas. This initiative should increase the availability of these critical materials, which are key enablers to the growth of the electronics industry.
India has strategically positioned itself as a key alternative to established markets in the U.S., Europe, and parts of Asia for expanding compute infrastructure. The global demand for cloud services is growing exponentially at this very moment. This has provided a timely opportunity for India to ride on the trend.
The Indian government has more than doubled its budget for the Electronics Components Manufacturing Scheme. They have succeeded in raising it to ₹400 billion ($4.36 billion). This increase reflects India’s intention to move beyond mere assembly and capture more value in global supply chains related to electronics and semiconductor manufacturing.
India just recently rolled out a 15% cost-plus safe harbor for local data-center operators. This important initiative would help these domestic operators better serve related foreign entities. This key piece of the measure is intended to improve India’s competitiveness and attract greater foreign investments to the country’s rapidly developing technology sector.
Furthermore, foreign companies that supply equipment and tooling to electronics toll manufacturers operating in bonded zones will benefit from a five-year tax exemption starting in April. This deregulation is aimed at drawing even more foreign capital into the electronics industry.
Rohit Kumar, an industry expert, commented on the significance of these developments:
“The announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure.”
Reflected through this lens is the growing awareness by governments of all stripes that data centers are key strategic assets for fostering economic development and technological advancement.