By Anurag Rai — Tech & Corporate Law Researcher and Advocate, India
Data is no longer merely an economic resource. It is becoming a strategic instrument of geopolitical influence.
As governments race to build sovereign AI systems and secure critical digital infrastructure, control over data storage, processing power, and cross-border digital flows is emerging as a defining factor in 21st-century statecraft. The competition is no longer limited to technological innovation alone — it increasingly revolves around who controls the infrastructure underpinning the global digital economy.
India enters this race at a pivotal moment.
With one of the world’s largest internet user bases, expanding AI ambitions, and an increasingly assertive digital policy framework, the country is positioning itself not only as a major AI market but also as a potential global data infrastructure hub. Yet ambition alone is insufficient. Sovereign AI cannot exist without sovereign infrastructure — and that places data centres at the centre of India’s digital future.
Highlights
The Infrastructure Behind Sovereign AI
The global AI boom has fundamentally altered the strategic importance of data centres.
For years, data infrastructure remained largely invisible — treated as back-end enterprise support rather than a core national asset. That perception has changed rapidly. AI systems require enormous computational power, low-latency processing, secure cloud environments, and continuous access to high-capacity storage. As demand for AI compute accelerates globally, countries are now competing aggressively to attract hyperscale data centre investments through incentives, public-private partnerships, and regulatory reforms.
According to Business Standard, India’s AI market is projected to reach approximately US$20–22 billion by 2027, growing at an estimated CAGR of 30 percent. Yet despite generating nearly 20 percent of the world’s data, India currently accounts for only around 3 percent of global data centre capacity. This imbalance exposes both a vulnerability and an opportunity.
The country’s digital economy ambitions — including AI deployment, cloud expansion, fintech growth, digital public infrastructure, and cross-border digital services — require a dramatic expansion of domestic data infrastructure. Without it, India risks becoming dependent on foreign-controlled compute ecosystems at precisely the moment digital sovereignty is becoming strategically essential.
The policy response reflects this urgency.
India’s push toward data localisation, sovereign AI capabilities, and domestic cloud infrastructure signals a broader shift in how governments increasingly view digital infrastructure: not simply as a commercial sector, but as a matter of economic security and geopolitical positioning.
Why India Holds Structural Advantages
India’s data centre ambitions are not based solely on market size. Several structural advantages position the country competitively within the emerging global AI infrastructure landscape.
Land, Scale, and Geographic Potential
Data centres are highly land-intensive assets, often requiring approximately one acre per megawatt of capacity. While India is not among the world’s largest landholding nations, it still retains significant geographic flexibility relative to many OECD economies and densely populated digital markets.
This creates an opportunity for India to emerge as an alternative infrastructure destination for nations and enterprises seeking diversification beyond the United States and China. Strategic land allocation policies, coupled with industrial infrastructure planning, could become a major differentiator in attracting long-term investments.
Renewable Energy as a Competitive Asset
Energy availability increasingly determines the viability of AI infrastructure.
India’s expanding renewable energy ecosystem offers a potentially significant strategic advantage. According to a 2024 World Bank report on electricity access, India ranks 22nd globally in electricity access — ahead of most OECD nations. The country’s high solar irradiance levels, combined with initiatives such as the PM Surya Ghar Yojana, are accelerating solar deployment across both distributed and grid-scale systems.
Simultaneously, coastal wind energy potential and hydroelectric resources in Himalayan and eastern regions provide additional renewable capacity diversification.
This matters because hyperscale AI infrastructure is extraordinarily energy-intensive. Global investors are now evaluating data centre locations not only based on connectivity and cost, but also on long-term sustainability metrics, carbon reduction commitments, and grid resilience.
India’s renewable energy expansion, therefore, serves a dual purpose — strengthening both its energy security and its attractiveness as a global AI infrastructure destination.
Coastal Infrastructure and Global Connectivity
India’s 7,500-kilometre coastline provides another underappreciated advantage.
Its geographic position between East and West places the country along major international digital traffic routes, making it strategically positioned for submarine cable connectivity and global data movement. Coastal infrastructure also improves access to ports, facilitating imports of high-performance servers, cooling technologies, and electrical infrastructure critical for hyperscale facilities.
In practical terms, this positions India not merely as a domestic digital market but as a potential gateway for global digital traffic flows across the Global South.
The Environmental Cost of the AI Infrastructure Boom
The rise of sovereign AI infrastructure also presents a difficult contradiction.
The very systems enabling the future digital economy carry substantial environmental costs. Data centres are among the most energy-intensive forms of modern infrastructure, operating continuously to support AI processing, cloud computing, and digital services at scale.
Energy Consumption and Grid Pressure
AI-enabled hyperscale facilities can consume electricity at levels comparable to small cities.
Although renewable energy integration is increasing, intermittency challenges mean thermal power — particularly coal-based generation in India — continues to play a critical role in maintaining grid stability. As AI workloads expand, the pressure on national energy systems will intensify significantly.
This creates a difficult policy balancing act. Governments must simultaneously expand digital infrastructure, ensure reliable power availability, and meet climate commitments.
Carbon Footprints Beyond Electricity
The environmental impact extends beyond operational electricity use.
As noted in a Deloitte analysis on AI infrastructure investment in India, cooling systems, diesel backup generators, hardware manufacturing, and construction supply chains all contribute significantly to the carbon footprint of data centres. As AI adoption accelerates globally, embodied carbon from semiconductor manufacturing, infrastructure development, and hardware replacement cycles will become increasingly material.
This means renewable procurement alone will not fully neutralise the environmental implications of large-scale AI infrastructure expansion.
Water Scarcity and Cooling Challenges
Water usage may become one of the sector’s most politically sensitive issues.
According to the same Deloitte report, large-scale data centres can require over one million litres of water daily for cooling operations, particularly in AI-intensive environments. Cooling systems already account for roughly 40 percent of a data centre’s electricity consumption, making operational efficiency a central concern.
In water-stressed regions of India, this raises difficult questions about resource allocation between industrial growth and public necessity.
The long-term sustainability of India’s data centre expansion will therefore depend on technological adaptation — including closed-loop cooling systems, treated wastewater utilisation, liquid cooling technologies, and advanced recycling and water treatment infrastructure.
As outlined in a TCS white paper on green data centres, without such measures, infrastructure growth could deepen ecological vulnerabilities that ultimately undermine the sector itself.
Policy, Capital, and India’s Investment Push
India’s challenge is not only technological — it is financial.
According to OECD data on AI investments by country, between 2013 and 2024, India attracted approximately US$29.6 billion in AI investments — compared to roughly US$1,012.5 billion in the United States (approximately 35 times more) and US$384.6 billion in China (approximately 13 times more). Closing this gap requires large-scale international capital inflows, long-term policy predictability, and investor confidence.
Domestic Policy and Infrastructure Reforms
The government has responded with an increasingly aggressive policy framework.
India’s Data Centre Policy 2020 outlines structural reforms, investment incentives, and governance mechanisms designed to accelerate sectoral growth. Proposed reforms include granting infrastructure status to data centres — aligning them with sectors such as transport and power — thereby improving access to long-term financing and international credit markets. The HAI AI Index 2025 further underscores the global significance of such policy moves in the broader AI infrastructure race.
The proposed establishment of Data Centre Economic Zones (DCEZs) further reflects an effort to create concentrated digital infrastructure ecosystems integrating hyperscale operators, cloud providers, R&D hubs, and allied technology industries.
A more ambitious National Data Centre Policy 2025 is reportedly under development, with plans to expand national capacity from roughly 1.2 GW to 9 GW by 2032.
Strategic Tax Incentives and Global Anchoring
Perhaps most strategically significant is India’s proposed tax holiday until 2047 for eligible foreign cloud providers using India-based data centres for global operations. Under the framework, income from global cloud operations routed through Indian data centres would not be subject to Indian taxation — though services to Indian customers must be delivered through a local reseller entity, keeping domestic transactions within the tax net. The move signals a deliberate attempt to anchor global digital infrastructure within India while positioning the country as a long-term AI infrastructure hub.
Bilateral Treaties and Inbound Capital Trends
At the same time, India’s evolving bilateral investment frameworks signal a broader shift toward a more investor-friendly posture. The India–UAE Bilateral Investment Treaty 2024, for instance, extended protection to financial instruments including shares, bonds, and loans — a notable departure from India’s more restrictive Model BIT 2016. It also cut the mandatory domestic litigation waiting period from five to three years, accelerating access to investor-state dispute settlement.
The results are beginning to show. According to the Global Investment Trends Monitor published by UNCTAD, data centres accounted for more than one-fifth of global greenfield project values in 2025, with announced investment exceeding US$270 billion. While France, the United States, and South Korea led as host countries, emerging markets — including Brazil, India, Thailand, and Malaysia — also attracted major projects.
From Digital Market to Digital Power
The global AI race is often framed as a competition over models, chips, and innovation.
But infrastructure may ultimately prove more decisive.
Countries that control compute capacity, data storage ecosystems, energy resilience, and digital traffic routes will shape the next era of technological influence. In that environment, data centres are no longer passive infrastructure assets. They are becoming instruments of economic leverage, geopolitical positioning, and national strategic autonomy.
India’s opportunity lies not merely in becoming a large AI consumer market, but in positioning itself as foundational infrastructure for the emerging digital order.
The country still faces major constraints — capital intensity, environmental sustainability, energy reliability, and execution risks among them. Yet the convergence of policy momentum, geographic advantages, renewable energy expansion, and growing investor interest creates conditions that few emerging economies currently possess.
The race for AI leadership will not be won solely by those who develop the most advanced systems.
It will increasingly be won by those who build the infrastructure powerful enough to sustain them.
Editor’s Note:
This article, originally titled “AI Sovereignty and the Rise of Data Centres in India: Opportunities, Challenges, and the Path Forward,” was contributed by Anurag Rai, an Advocate and Tech & Corporate Law Researcher whose work focuses on the intersection of AI governance, digital infrastructure, corporate regulation, and public policy.
Views expressed are the author’s own. To pitch your story or share insights on hospitality, leadership, or business in Asia, contact the NIA editorial team.
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