New Delhi: The Union Budget has laid out an ambitious blueprint to position India as a global hub for data centres, cloud computing and artificial intelligence, offering sweeping long-term tax incentives to foreign companies that use India-based data centres to serve global customers. The move is being seen as one of the most consequential digital-economy reforms in recent years, with the potential to reshape global cloud architecture and channel large-scale investment into India’s digital infrastructure.
Under the proposals announced in the Budget, foreign cloud service providers that deliver services worldwide using data centres located in India will be granted tax exemptions extending up to 2047. The incentive is designed to draw hyperscalers and global technology firms to anchor their data, AI and cloud operations in the country.
However, the government has stipulated that services to Indian customers must be routed through an Indian reseller entity, ensuring domestic value creation and regulatory oversight. In addition, where cloud services are provided through related-party entities, the Budget proposes a 15% safe harbour on cost, offering clarity and certainty on transfer pricing.
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Strategic push for digital infrastructure
Presenting the Budget, the government underlined that data centres are now critical infrastructure, on par with roads, ports and power plants. With rapid growth in AI applications, cloud computing, digital payments and data-driven services, the demand for reliable, scalable and energy-efficient data infrastructure is accelerating globally.
The tax incentive is aimed at making India a preferred destination not only for hosting data but also for advanced AI workloads, high-performance computing and next-generation digital services. Policymakers believe the move will help India transition from being largely a consumer of global cloud services to becoming a foundational provider of digital capacity to the world.
Aligning with India’s AI ambitions
The focus on data centres comes at a time when India is seeking a larger role in the global AI ecosystem. Robust data infrastructure is a prerequisite for training large AI models, running inference at scale and supporting data-intensive applications across sectors such as healthcare, finance, manufacturing and governance.
The Budget’s emphasis dovetails with preparations for the India AI Impact Summit, scheduled to be held in New Delhi later this month, the first such global AI event to be hosted in the Global South. The summit is expected to spotlight India’s ambition to emerge as a trusted, cost-efficient and scalable AI and digital infrastructure hub.
According to government estimates cited earlier, investments of around $70 billion are already flowing into the AI infrastructure layer, including data centres, computing hardware and energy systems, with the figure expected to double in the coming years as global demand rises.
Boost to investment and jobs
Industry executives say the extended tax holiday could unlock multi-billion-dollar investments in data centre parks, submarine cable connectivity, renewable energy integration and specialised hardware such as GPUs and advanced chips. Data centres are capital-intensive assets with long payback periods, and the clarity offered by a multi-decade tax framework is expected to significantly improve project viability.
Beyond infrastructure, the expansion is likely to generate high-quality employment in areas such as cloud architecture, cybersecurity, AI engineering, data management and facility operations. Ancillary sectors including construction, power, cooling technologies and telecom are also expected to benefit.
Safeguards and domestic linkage
By mandating that services to Indian users be delivered through local reseller entities, the government has sought to strike a balance between attracting foreign investment and safeguarding domestic interests. The structure ensures that Indian customers remain within the domestic regulatory and tax framework, while still allowing global firms to leverage India as a base for international operations.
The 15% safe harbour provision for related-party transactions is also expected to reduce disputes and litigation, a long-standing concern for multinational technology companies operating complex global delivery models.
Big-picture significance
Analysts say the data centre push reflects a broader strategic shift in economic policy, where digital infrastructure is being treated as a core growth engine, alongside manufacturing and physical infrastructure. As data becomes the currency of the digital age, countries that host and process global data flows are likely to wield significant economic and strategic influence.
By offering long-term certainty and scale, the Budget signals India’s intent to become not just a participant but a central pillar of the global cloud and AI ecosystem. If executed effectively, the policy could redefine India’s role in the world’s digital economy—transforming it into one of the key hubs powering global data, AI and cloud services over the coming decades.
