As competition to host large-scale AI infrastructure intensifies worldwide, India is rolling out an aggressive incentive to pull global cloud and AI workloads into the country. The government has proposed eliminating taxes until 2047 on revenues generated from overseas cloud services, provided those computing workloads are operated from data centers located within India. The move is designed to position India as a long-term destination for AI investment, despite ongoing concerns around electricity availability and growing water constraints.
The initiative was unveiled on Sunday by Finance Minister Nirmala Sitharaman during the presentation of India’s annual budget. Under the proposal, foreign cloud providers would benefit from a long-term tax exemption on income earned from international clients when the underlying infrastructure is hosted in Indian data centers. However, services sold to customers within India would still be subject to domestic taxation and must be delivered through locally registered reseller entities.
In addition, the budget outlines a cost-plus framework for Indian data center companies that support affiliated foreign firms. These operators would be allowed a 15% safe-harbor margin, offering clearer tax certainty for cross-border service arrangements and further strengthening India’s appeal as a base for global AI and cloud operations.
The policy push aligns with a broader global expansion by major U.S. cloud providers such as Amazon, Google, and Microsoft, all of which are rapidly increasing data center capacity to handle the explosive growth of AI-driven computing. As this expansion accelerates, India is gaining traction as a preferred destination for new infrastructure investments. The country combines a deep reservoir of engineering talent with fast-rising demand for cloud services, positioning itself as a competitive alternative to traditional data center hubs in North America, Europe, and parts of East Asia.
Recent investment announcements highlight the scale of this momentum. In October, Google revealed plans to deploy $15 billion toward building an AI hub and expanding its data center footprint in India—its largest investment in the country so far, following a $10 billion commitment made in 2020. Shortly afterward, Microsoft disclosed a long-term investment plan of $17.5 billion through 2029 to strengthen its AI and cloud presence, including funding for new data centers, digital infrastructure, and workforce training initiatives. Amazon has also accelerated its commitments, announcing in December an additional $35 billion investment by 2030, bringing its total planned spending in India to roughly $75 billion across its cloud and retail operations.
India’s homegrown data center industry is scaling up in parallel to meet rising international demand. Digital Connexion—a joint venture supported by Reliance Industries, Brookfield Asset Management, and Digital Realty—announced in November a $11 billion investment to develop a 1-gigawatt, AI-oriented data center campus in Andhra Pradesh. Covering approximately 400 acres in Visakhapatnam, the project ranks among the largest of its kind in the country and reflects growing confidence from both domestic and global backers in India’s AI infrastructure potential. Separately, the Adani Group stated in December that it plans to invest up to $5 billion alongside Google in another AI-focused data center initiative.
Despite this surge of capital, expanding data center capacity at scale remains challenging. Inconsistent power supply, elevated electricity prices, and mounting water stress continue to pose significant hurdles for energy-intensive AI operations. These structural constraints could delay new developments and increase long-term operating costs for cloud and AI service providers operating in the country.