In the accelerating global race to build AI infrastructure, India has made a bold move to attract the next wave of investment. The country is offering foreign cloud providers zero taxes through 2047 on services sold outside the country, provided those workloads are run from Indian data centers. This tax holiday was announced by India’s finance minister, Nirmala Sitharaman, as part of the country’s annual budget. Sales to Indian customers, however, must be routed through locally incorporated resellers and will be taxed domestically. The budget also proposes a 15% cost-plus safe harbour for Indian data-center operators providing services to related foreign entities.
This announcement comes as major U.S. cloud giants race to expand data-center capacity worldwide to support the surge in artificial intelligence workloads. India is emerging as an increasingly attractive location for this investment, offering a large pool of engineering talent, growing domestic demand for cloud services, and positioning itself as a key alternative to the U.S., Europe, and parts of Asia for expanding compute infrastructure.
Recent commitments underscore this trend. In October, Google announced a $15 billion investment to build an AI hub and expand data-center infrastructure in India, its largest commitment in the country to date. Microsoft followed in December with plans to invest $17.5 billion by 2029 to expand its AI and cloud footprint. Amazon also stepped up its spending, saying it would invest an additional $35 billion in India by 2030, taking its total planned commitment to about $75 billion.
India’s domestic data-center sector is also ramping up to meet global demand. In November, a joint venture called Digital Connexion said it would invest $11 billion by 2030 to develop a 1-gigawatt, AI-focused data center campus in Andhra Pradesh. Separately, Adani Group said in December it plans to invest up to $5 billion alongside Google in an AI data center project.
However, scaling up data center capacity in India faces significant challenges. Patchy power availability, high electricity costs, and water scarcity pose key constraints for energy-intensive AI workloads. These issues could slow construction and raise operating costs for cloud providers.
Policy experts note the strategic importance of these moves. The announcements signal that data centers are being treated as a strategic business sector rather than just back-end infrastructure. This push is likely to attract more private investment and strengthen India’s position as a regional data and compute hub, though execution challenges around power, land access, and clearances remain.
Analysts project that India’s data-center power capacity could surpass 2 gigawatts by 2026 and expand more than fivefold to exceed 8 gigawatts by 2030, driven by capital investments of more than $30 billion. The tax incentive for foreign firms until 2047 reflects a strategic bet on global Big Tech. However, the requirement to route services to Indian users through reseller entities could leave smaller domestic players competing for thin margins instead of receiving comparable upstream incentives.
The federal budget also included measures to deepen India’s role in electronics and semiconductor manufacturing. The government will launch a second phase of the India Semiconductor Mission, focused on producing equipment and materials, developing domestic chip intellectual property, and strengthening supply chains. Furthermore, the outlay for the Electronics Components Manufacturing Scheme was increased significantly after the program attracted investment commitments at more than double its original target. This scheme offers incentives tied to incremental production and investment for manufacturing key components used in smartphones, servers, and data-center hardware.
Additionally, the budget proposed a five-year tax exemption for foreign companies supplying equipment and tooling to electronics manufacturers in bonded zones, a change likely to benefit companies like Apple.
To address vulnerabilities in critical minerals, the government will support mineral-rich states in establishing dedicated rare-earth corridors to promote mining, processing, and manufacturing. This builds on a recent incentive program to boost domestic production of rare-earth magnets, as access to supplies from China has become more constrained.
Beyond AI and electronics, the government moved to boost cross-border e-commerce by removing a value cap on courier exports, a move expected to benefit small businesses and artisans selling overseas. The handling of rejected and returned shipments will also be streamlined.
Overall, these measures emphasize 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 surging AI demand and shifting supply chains. Its ultimate success, however, will hinge on execution—from providing reliable power and water for data centers to sustaining support for domestic innovation—as global companies weigh whether India can translate policy incentives into durable leadership in the AI era.