India offers zero taxes through 2047 to lure global AI workloads
However, scaling up data center capacity in India may prove difficult, as patchy power availability, high electricity costs, and water scarcity pose key constraints for energy-intensive AI workloads. Those challenges could slow construction and raise operating costs for cloud providers.
“The announcements on data centers signal that they are being treated as a strategic business sector rather than just back-end infrastructure,” said Rohit Kumar, founding partner of New Delhi-based The Quantum Hub, a public policy and tech consulting firm. The push is likely to attract more private investment and strengthen India’s position as a regional data and compute hub, though execution challenges around power availability, land access, and state-level clearances remain, he added.
Sagar Vishnoi, co-founder and director of Noida-based think tank Future Shift Labs, said India’s data-center power capacity is projected to surpass 2 gigawatts by 2026, up from just over 1 gigawatt currently, and could expand more than fivefold to exceed 8 gigawatts by 2030, driven by capital investments of more than $30 billion. While the budget signals clear intent to accelerate digital infrastructure and cloud computing, Vishnoi said allowing foreign cloud firms to earn profits tax-free until 2047 reflects a “strategic bet on global Big Tech,” even as India could produce its own technology champions over the next two decades.
He added that routing services to Indian users through reseller entities could leave smaller domestic players competing for thin margins, rather than receiving comparable upstream incentives.
The federal budget also stepped up incentives to deepen India’s role in electronics and semiconductor manufacturing, as the country seeks to move beyond assembly and capture more value in global supply chains. The federal government would launch a second phase of the India Semiconductor Mission, the finance minister said, focused on producing equipment and materials, developing full-stack domestic chip intellectual property, and strengthening supply chains, while backing industry-led research and training centers to build a skilled workforce.
Additionally, the Indian government has raised the outlay for the Electronics Components Manufacturing Scheme to ₹400 billion (around $4.36 billion), from ₹229.19 billion (about $2.50 billion), after the program — launched in April 2025 — attracted investment commitments at more than double its original target, Sitharaman said.
This scheme offers incentives tied to incremental production and investment, reimbursing a portion of costs for companies that manufacture key components such as printed circuit boards, camera modules, connectors, and other parts used in smartphones, servers, and data-center hardware. By linking payouts to actual output rather than upfront subsidies, the program is designed to draw global suppliers deeper into India’s electronics supply chain and reduce reliance on imported components — a long-standing criticism of the country’s manufacturing push.
Alongside increasing the spending allocation for the electronics components scheme, the federal budget also proposed a five-year tax exemption starting in April for foreign companies supplying equipment and tooling to electronics toll manufacturers operating in bonded zones. The change is likely to benefit companies including Apple, which relies heavily on contract manufacturing in India and has previously been reported to have sought clarity from New Delhi on the tax treatment of high-end iPhone production equipment supplied to its partners.
The budget also sought to address vulnerabilities in critical minerals, as India grapples with tightening global supplies of rare earth materials used in electric vehicles, electronics devices, and defense systems. The finance minister said the federal government would support mineral-rich states including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu in establishing dedicated rare-earth corridors to promote 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 output — has become more constrained.
Beyond AI infrastructure and electronics manufacturing, the Indian government also moved to boost cross-border e-commerce, aiming to help smaller businesses tap global demand. The finance minister said the existing ₹1 million (around $11,000) value cap per consignment on courier exports would be removed, a move expected to benefit small manufacturers, artisans, and startups selling overseas through online platforms. The federal government would streamline the handling of rejected and returned shipments using technology, addressing a long-standing bottleneck for exporters, Sitharaman said.
Overall, the latest measures emphasize India’s ambition to position itself as a long-term hub for global technology infrastructure, spanning cloud computing, electronics manufacturing, and critical minerals. The strategy aims to capitalize on surging AI demand and shifting supply chains. Nonetheless, its success will hinge on execution — from reliable power and water for data centers to sustained support for domestic innovation — as global companies and investors weigh whether India can translate policy incentives into durable leadership in the AI era.
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