India data centre boom lifts IT investment despite hurdles

New Delhi: New data centre projects and rising project costs have pushed investment announcements in India's IT services sector to 4.5% of gross domestic product over the past 12 months, up from 0.8% a year earlier, Nomura said in a research note. The India data centre boom now accounts for about 28.4% of all new investment projects announced, a record share, according to Centre for Monitoring Indian Economy data cited by Nomura.

A tax holiday for foreign companies in the Union Budget 2026-27 helped lift the numbers, Nomura said. The brokerage cautioned that availability of power and water remains the biggest constraint on executing the projects.

Data centre investment in India has been driven by artificial intelligence adoption, the growth of global capability centres and rising demand for cloud capacity. Cloud infrastructure in India is expanding to serve that demand. The IT services sector is capturing a larger slice of national investment than ever before, as the India data centre boom gathers pace and operators add capacity.

Nomura also flagged a structural shift: rising imports of consultancy, digital, technical and trade services are constraining India's services trade surplus. It linked the trend to global capability centres, AI adoption and data centres, plus rising intellectual property imports that it attributed in part to lower domestic research spending.

Business and income mobility have also led Indians to spend more on personal and business travel abroad, Nomura added. The note describes an economy importing more of the services it once exported.

What is driving the India data centre boom

Policy support is a major factor. The Union Budget's tax holiday for foreign companies made India cheaper for overseas operators, and several states offer power tariff subsidies, tax breaks and easier land clearances. India is now the top-ranked market for data centre development in Asia-Pacific outside China, according to BloombergNEF, and data centre investment keeps flowing while the signals point that way.

Demand is the other driver. Connor Teskey, chief executive of Brookfield Asset Management, said demand so overwhelms supply that the imbalance will last through the end of this decade and probably far beyond. Abhijit Dubey, president and chief executive of NTT Data, pointed to skilled people as the overlooked bottleneck, noting that electricians and technicians now earn more than most white-collar workers.

Infosys chief executive Salil Parekh was more cautious about the India data centre boom, saying semiconductor chips were "massively expensive" and facing intense competition, so it was unclear how long the capacity being built would remain useful.

Power and water: the India data centre boom's biggest test

The government is preparing a dedicated policy for the sector. Junior IT minister Jitin Prasada said it wants to keep data centres from driving up household electricity bills. "India is a very fertile ground for hyperscale data centres," he said at a Central Electricity Authority event, adding: "we don't want to get into that."

Residents near an Amazon site outside Mumbai have protested over strain on power and water and noise, while environmentalists say Google's $15 billion Visakhapatnam project threatens wildlife and misuses temple land. Both companies deny wrongdoing. Without local consent, new sites will face delays. Cloud infrastructure in India cannot grow without it, and the India data centre boom cannot grow on megawatts alone.

Kuldeep Jain, managing director of CleanMax Enviro Energy Solutions, estimated that even 5 gigawatts of data centre capacity would need 30 to 40 gigawatts of renewable power. "It's a case of demand exceeding supply," he said in a Mumbai interview.

How far the India data centre boom can run

Operators are looking beyond the traditional hubs. Manoj Paul, managing director of Equinix India, said AI is changing where companies build, naming Visakhapatnam and Jamnagar as unlikely new locations. Equinix has about 20 megawatts of capacity in India and aims to reach 70 megawatts in two to three years.

Paul said new sites need stable power, land and trained people, though land costs in Bangalore, Chennai and Mumbai now match global cities, so most new facilities are built vertically. Hyperscale data centres need scale, and the metros no longer offer it cheaply, even as the India data centre boom moves beyond them.

Prime Minister Narendra Modi has invited "the whole world's data to reside in India", and his government sees the sector as a $200 billion opportunity. Whether the India data centre boom delivers on that ambition depends on power, water and talent arriving as fast as the announcements.