As the global race to build AI infrastructure accelerates, India has offered foreign cloud providers zero tax on services sold abroad until 2047 if they run workloads from Indian data centers. The move is aimed at attracting the next wave of AI computing investment as power shortages and water stress threaten business expansion in the South Asian country.
On Sunday, India’s Finance Minister Nirmala Sitharaman announced a proposal (PDF) in India’s annual budget that would give tax breaks (effectively zero taxes) on revenue from cloud services sold outside India if they are operated from data centers in the country. Sales to Indian customers would have to go through locally incorporated resellers and be taxed domestically, he told Congress. The budget also proposes a 15% cost-added safe harbor for Indian data center operators providing services to associated foreign companies.
The announcement comes as US cloud giants including Amazon, Google and Microsoft race to add data center capacity around the world to support a surge in artificial intelligence workloads, with India emerging as an increasingly attractive location for new investments. The country has a deep pool of engineering talent and a growing demand for cloud services, positioning it as a key alternative to the United States, Europe and parts of Asia in expanding its computing infrastructure.
Google announced in October that it would invest $15 billion to build an AI hub and expand data center infrastructure in India. This is the country’s largest commitment to date, following $10 billion in 2020. Microsoft followed suit in December by announcing plans to invest $17.5 billion through 2029 to expand its AI and cloud footprint and fund new data centers, infrastructure and training programs. Amazon also stepped up spending in December, announcing it would invest an additional $35 billion in India through 2030, bringing its total plans to expand its retail and cloud businesses to about $75 billion.
India’s domestic data center sector is also being strengthened to meet global demand. In November, Digital Connection, a joint venture backed by Reliance Industries, Brookfield Asset Management and Digital Realty Trust, announced it would invest $11 billion by 2030 to develop a 1 GW AI-focused data center campus in the southern state of Andhra Pradesh. The project, spread over around 400 acres in Visakhapatnam, is one of the largest announced in India and highlights the growing interest of domestic and global investors in building AI-enabled infrastructure in the country. Separately, Adani Group in December announced plans to jointly invest up to $5 billion in AI data center projects in the country with Google.
However, expanding data center capacity in India can be difficult as patchy power availability, high electricity prices, and water scarcity pose key constraints for energy-intensive AI workloads. These challenges can delay construction and increase operating costs for cloud providers.
“The announcements about data centers show that data centers are being treated as a strategic business sector and not just back-end infrastructure,” said Rohit Kumar, founding partner of Quantum Hub, a New Delhi-based public policy and technology consulting firm. The push is likely to attract more private investment and strengthen India’s position as a regional data and computing hub, but implementation challenges around power availability, land access and state-level approvals remain, he added.
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Sagar Vishnoi, co-founder and director of Future Shift Lab, a Noida-based think tank, said India’s data center power capacity is expected to exceed 2 GW by 2026, up from just over 1 GW now, and could expand more than five times to over 8 GW by 2030 with more than $30 billion in capital investment. While the Budget signals a clear intention to accelerate digital infrastructure and cloud computing, allowing foreign cloud companies to earn tax-free profits until 2047 reflects a “strategic bet on global Big Tech”, Bishnoi said, even as India could produce its own tech champions over the next two decades.
He added that routing services to Indian users through resellers could result in smaller domestic players competing for thin profit margins without receiving equivalent upstream incentives.
The Union Budget also strengthened incentives to deepen India’s role in electronics and semiconductor manufacturing as the country looks to capture more value in global supply chains beyond assembly. The Union government will launch the second phase of the India Semiconductor Mission to focus on production of equipment and materials, development of full-stack intellectual property for domestic chips and strengthening supply chains, while supporting industry-led research and training centers to build a skilled workforce, the finance minister said.
Additionally, Sitharaman said the Indian government has increased spending on the electronic component manufacturing scheme from 229.19 billion rupees (approximately $2.5 billion) to 400 billion rupees (approximately $4.36 billion) after the program, which was launched in April 2025, attracted investment commitments more than double its original target.
The scheme provides incentives related to incremental production and investment to companies that manufacture key components such as printed circuit boards, camera modules, connectors and other parts used in smartphones, servers and data center hardware, and reimburses a portion of their costs. The program aims to bring global suppliers deeper into India’s electronics supply chain and reduce dependence on imported components by tying payments to actual output rather than upfront subsidies. This is a long-standing criticism of the country’s promotion of manufacturing.
The federal budget increased spending on the electronic components program and proposed a five-year tax break starting in April for foreign companies that supply equipment and tools to fee-paying electronics manufacturers operating in bonded zones. The changes are likely to benefit companies including Apple, which relies heavily on contract manufacturing in India and was previously reported to have sought clarity from New Delhi on the tax treatment of high-end iPhone production equipment supplied to partners.
India is grappling with tight global supplies of rare earth materials used in electric vehicles, electronics and defense systems, and the budget also called for addressing vulnerabilities in critical minerals. The finance minister said the Union government will support mineral-rich states such as Odisha, Kerala, Andhra Pradesh and Tamil Nadu to establish dedicated rare earth corridors to facilitate mining, processing, research and manufacturing. The move builds on a seven-year incentive program approved in late 2025 to boost domestic production of rare earth magnets as access to supplies from China, which dominates global production, becomes more limited.
Beyond AI infrastructure and electronics manufacturing, the Indian government has also moved to promote cross-border e-commerce with the aim of helping small and medium-sized enterprises tap global demand. The finance minister said the current value cap of 1 million rupees (about $11,000) per package for courier exports will be removed, which is expected to benefit small manufacturers, artisans and start-ups selling abroad through online platforms. Sitharaman said the federal government will leverage technology to streamline the processing of rejected and returned cargo, addressing a long-standing bottleneck for exporters.
Overall, the latest measures underscore India’s ambitions to position itself as a long-term hub for global technology infrastructure spanning cloud computing, electronics manufacturing and critical minerals. The strategy aims to take advantage of the surge in demand for AI and changes in supply chains. Nevertheless, as global companies and investors consider whether India can translate policy incentives into lasting leadership in the age of AI, its success will depend on execution, from reliable power and water for data centers to sustained support for domestic innovation.
