India is moving aggressively to attract global data center capital by offering tax-free cloud revenues to foreign providers that base operations inside the country. The proposal, unveiled in the Union Budget, aims to anchor large-scale cloud and AI infrastructure in India for decades.

Under the plan, foreign cloud companies would be allowed to earn revenue from services sold outside India without paying taxes until 2047. However, the exemption applies only if workloads are run from Indian data centers. Meanwhile, services sold to Indian customers would continue to be taxed domestically through locally incorporated reseller entities.

Policy Targets AI-Driven Compute Expansion

The incentive arrives as demand for AI infrastructure accelerates worldwide. In response, governments are competing to secure long-term computing capacity. With capacity tightening in the United States and parts of Europe, India is being positioned as an alternative destination.

In addition, the budget introduces a 15% cost-plus safe harbor for Indian data center operators serving related foreign entities. As a result, greater certainty is being offered on transfer pricing, a key concern for multinational operators.

Big Tech Investment Momentum Builds

Major U.S. cloud providers have already committed large sums to India. Google has announced plans to invest $15 billion to expand data center capacity and build an AI hub. This follows an earlier $10 billion commitment.

At the same time, Microsoft has outlined investments of $17.5 billion through 2029 to scale its cloud and AI footprint. Amazon has also said its total planned investment in India could reach $75 billion by 2030, spanning cloud and retail operations.

Domestic Operators Scale Up Capacity

Alongside foreign players, Indian data center developers are expanding rapidly. Digital Connexion, backed by Reliance Industries, Brookfield Asset Management, and Digital Realty Trust, has announced plans for a large AI-focused campus in Andhra Pradesh.

Similarly, the Adani Group has disclosed plans to invest alongside Google in AI data center projects. Consequently, competitive pressure is intensifying across the sector.

Structural Constraints Remain

Despite strong interest, challenges persist. Power availability remains uneven across regions. Electricity costs also stay relatively high. In addition, water scarcity continues to complicate cooling strategies for large facilities.

Because AI workloads are highly energy-intensive, these factors could affect operating costs and project timelines. As a result, site selection and infrastructure planning are being scrutinized more closely.

Concerns Over Market Structure

Some concerns have also been raised about the reseller-based domestic cloud model. Smaller Indian firms could face margin pressure, especially when competing with global providers benefiting from upstream tax incentives.

Nevertheless, the government appears focused on scale. Policy clarity is being prioritized to attract long-term capital.

Semiconductors and Electronics Get a Boost

Beyond cloud infrastructure, the budget reinforces India’s push into electronics and semiconductors. A second phase of the India Semiconductor Mission will focus on equipment, materials, and domestic chip intellectual property.

In addition, funding for the Electronics Components Manufacturing Scheme has been raised to ₹400 billion. Incentives are tied directly to production and investment, encouraging deeper localization by global suppliers.

Further measures include a five-year tax exemption for foreign firms supplying equipment and tooling to manufacturers operating in bonded zones. This is expected to benefit multinational contract manufacturers.

Critical Minerals Strategy Takes Shape

Finally, the budget addresses vulnerabilities in critical mineral supply chains. Support is planned for mineral-rich states to develop rare-earth corridors spanning mining, processing, and downstream manufacturing.

Taken together, the measures signal a coordinated effort. India is positioning itself as a long-term hub for cloud, AI, and advanced electronics, while reshaping the economics of global data center investment.