The Government of India is considering a significant policy shift aimed at strengthening the country’s fast-growing data centre ecosystem. According to the draft National Data Centre Policy 2025, developers of data centres may be granted tax exemptions for up to 20 years, provided they achieve specific benchmarks related to capacity addition, power usage effectiveness (PUE), and employment generation.
Data Centre Industry Tax Exemption Plan
The proposed tax holiday is expected to encourage both domestic and international investors to expand their presence in India’s data infrastructure sector. Officials have indicated that the Ministry of Electronics and Information Technology (MeitY) will also request the Finance Ministry to extend input tax credit (ITC) on GST for critical assets such as data centre construction, HVAC systems, power equipment, and electronic hardware.
Industry experts believe that such fiscal incentives will lower capital expenditure and boost the competitiveness of India’s data centre industry, which is already witnessing rising demand due to cloud adoption, AI integration, and 5G rollout.
Coordinated Push with Power Ministry and Regulators
The draft policy also highlights the need for coordinated efforts across multiple ministries. The IT ministry is expected to work closely with the Power Ministry, the Central Electricity Authority, and state-level bodies to ensure reliable electricity supply for large-scale data centre operations. Reliable power availability is a critical requirement, as the sector is highly energy-intensive and dependent on uninterrupted access to green and grid power.
Rising Demand for Data Centres in India
India’s internet penetration and digital transformation are driving unprecedented demand for data storage and compute infrastructure. The Economic Survey 2024–25 projects the Indian data centre market to reach $11.6 billion by 2032, up from an estimated $5.6 billion in 2024.
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The number of internet users in India is expected to cross 1.2 billion by 2030, further accelerating the need for cloud services, hyperscale data centres, and colocation facilities.
Role of Artificial Intelligence in Driving Infrastructure Growth
The surge in AI adoption has added a new dimension to data centre growth. Modern AI models require enormous computing power, high-speed networking, and scalable storage capacity, making data centres indispensable for the deployment of generative AI, machine learning, and large language models.
Earlier this year, the Centre announced the IndiaAI Mission with an allocation of ₹10,000 crore. The initiative aims to establish robust AI compute infrastructure under a public-private partnership model, along with the development of AI foundational models in multiple Indian languages for key sectors such as agriculture, healthcare, and governance.
So far, startups including Soket AI Labs, Gnani.ai, and Gan.ai have been onboarded under the mission to develop India-specific AI models.
Big Tech and Global AI Companies Eye India
Global tech majors are ramping up their investments in India’s data economy. Reports suggest that OpenAI is exploring partnerships with Indian firms to set up a 1 gigawatt (GW) capacity data centre in the country. Similarly, Google has announced plans to invest $6 billion in building a 1 GW data centre and allied power infrastructure in Andhra Pradesh, strengthening its footprint in India’s digital ecosystem.
Industry analysts note that these developments position India as one of the most attractive data centre investment destinations in Asia, competing with hubs like Singapore and Indonesia.
Employment and Skill Development Opportunities
Alongside infrastructure, the draft policy underlines the importance of job creation and skill development. By linking tax benefits to employment generation, the government aims to ensure that the rapid expansion of the sector translates into direct and indirect employment opportunities across construction, IT, power management, cybersecurity, and digital operations.
Consultations and Next Steps
The draft National Data Centre Policy 2025 is currently being circulated among stakeholders, including data centre operators, cloud service providers, and industry associations. Feedback will be reviewed before the final policy is notified.
If implemented, the tax exemption could mark a turning point for India’s digital infrastructure landscape, reinforcing the country’s position as a global hub for data hosting, cloud storage, and AI compute power.
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