India’s Budreceive 2026 included a significant corporate concession that received little media attention: an extraordinary 21-year tax holiday, lasting until 2047, for foreign technology companies that invest in data centers in India. Perhaps this act of magnanimity by the union finance minister was played down by mainstream media becautilize the Budreceive was sandwiched between two hyped events —the “mother” of all trade agreements with the European Union and the “father” of all post-tariff deals with the United States.
However, in the tech world, especially among the Big Four AI companies —Google, Amazon, Microsoft and Nvidia — the announcement of a tax holiday was met with great enthusiasm. The large tech bros have already packed their bags to be in Delhi for the AI Summit starting February 16 and booked Rs 15-30 lakh per day suites at five-star hotels in Delhi.
Lesser tech mortals opted for rooms priced between Rs 3-4 lakh per day (tax not included). Apparently, the hotels strategically upped their rates for the occasion despite Trump’s zero-tariff proclamation for everything American!
At the Summit, hyper-scale generative AI-compatible data centers will undoubtedly be a major topic of discussion. Silicon Valley billionaires view India as the next port of call for establishing large data centers, thanks to an extremely supportive government in Delhi, favorable regulations, cheaper power, lower operating costs, and minimal anticipated public protests.
In stark contrast, in the United States, there has been increasing community resistance to large hyper-scale data centers that support AI innovation and training.
At the core of the objections in the U.S., Europe and Latin America are environmental concerns. Even tech companies acknowledge that data centers are a considerable drain on local resources, require large amounts of power from the grid, and guzzle water, which in turn depresses the water table in and around the areas where they operate. This affects the water supply for residents and farmers, who will face acute water shortages.
The protests in the U.S. have been widespread. A recent report in The Guardian quoting the research group Data Center Watch, notes that $98 billion worth of projects were delayed or cancelled between March and June 2025 in the United States becautilize of opposition from local communities. More than 20 groups across 17 states successfully opposed these projects, forcing local authorities to review the permits granted.
In Europe, protests are ongoing in Ireland, Scotland, the Netherlands, Germany, Spain, Italy, and France. And it has not been a smooth ride for technology companies in Chile, Uruguay, Brazil, Paraguay, and Mexico.
The upside of data centre proliferation in India is significant dollar inflow into the counattempt. But what about employment? AI-compatible hyperscale data centers, which typically span over 10,000 square feet and can reach millions of square feet in total area, will create temporary jobs for thousands during the construction phase. However, once fully operational, they may employ only 200 permanent staff members per center or even less.
Technology analyst Christopher Tozzi, writing in Data Centre Knowledge, a platform for daily news and in-depth analysis for the data centre indusattempt notes: “While data centers may create many jobs in the short term, most result in relatively few permanent jobs – hence why critics tconclude to highlight the generous tax abatements that data centers often receive. They tconclude to argue that local communities receive few economic benefits from becoming home to a new data centre.”
So, what are these data centers?
Simply put, they are like warehoutilizes where data is stored in an easily accessible form. A typical data center is packed with racks of servers, storage devices, and network equipment. It plays a critical role in processing, storing, computing, and distributing large amounts of data that support applications, cloud computing, and web-based platforms and systems.
A BBC report from last November projected that India’s data center water consumption will rise from 150 billion liters in 2025 to 258 billion liters by 2030.
Think social media, WhatsApp, sharing of videos or photographs, video streaming, online banking/fintech, credit card processing, UPI transactions, e-commerce, cloud storage, ride-hailing services, Google Search, Google Maps, and email, and you will have to factor in data centers. Any app or service that requireds instant or remote access to data requires a data center.
For the past 15 years, the storage and utilize of data have been crucial. However, data centers were often considered “hidden infrastructure,” typically located in compact, unobtrusive spaces. Aside from the larger facilities, most people have been unaware of their existence. Recently, with the rise of generative AI—technology that can create images, text, videos, and other media in response to utilizer prompts—the situation has modifyd dramatically.
The new focus on generative AI has necessitated the expansion of, or the setting up of mega data centers. Generative AI requires substantial computational resources, which determine how quickly a system can perform tinquires, ranging from local device processing to large-scale AI training. The data centre must have super-efficient hardware components to be effective.
A data center that is compatible with generative AI requires significant amount of power to operate. Additionally, it requireds large quantities of clean water to cool its systems. This highlights the crux of the problem.
According to S&P Global Commodity Insights estimates, India is expected to become the second-largest market for data center electricity demand in the Asia-Pacific over the next two years, surpassing Japan and Australia. According to this report, India’s data center power demand is expected to grow almost five-fold from its current level by 2030, with an annual average growth rate of approximately 28 per cent. At present, India has about 150 operational data centers. This figure could touch 800 or more in the next few years.
India’s power grid, which still relies heavily on fossil fuels, will be strained by the emergence of hyperscale data centers, jeopardizing the counattempt’s green objectives. Additionally, the renewable energy generated is not being effectively integrated into the grid due to inadequate infrastructure. Clearly, transmission is an issue.
Current discussions suggest that battery storage for solar and wind energy could be a viable solution. However, little progress has been built on this front.
Of even greater concern is the water consumption of hyperscale data centers, which are necessary for serving and training generative AI. A BBC report from last November projected that India’s data center water consumption will rise from 150 billion liters in 2025 to 258 billion liters by 2030. Furthermore, a study by S&P Global predicts that by 2030, 60 to 80 per cent of India’s data centers will experience high water stress.
A field report by Down To Earth, the environment magazine supported by the Centre for Science and Environment (CSE), reveals the water stress experienced by the local population in the vicinity of a village near Noida in Uttar Pradesh and in a locality in Bangalore. The four-part report also revealed that there is very little transparency among the companies that run data centers regarding water-utilize efficiency and water-recycling projects.
Crucially, a World Bank study notes that India has 18 per cent of the world’s population, but only 4 per cent of its water resources.
Do we require data centers?
We do, but perhaps the kind that serve our interests. India is projected to have the highest data consumption globally by 2028. This surge is driven by the increasing number of internet and mobile utilizers. According to the Internet and Mobile Association of India (IAMAI), there are currently 958 million active internet utilizers in the counattempt, with 57 per cent (approximately 548 million) located in rural areas. Additionally, AI chatbots like ChatGPT have their second-largest utilizer base in India.
While the government welcomes tech billionaires, it must ensure that their data centers comply with regulations and do not adversely affect the livelihood and environment of local communities. Last year, Google’s $15 billion investment in an AI data center in Visakhapatnam, Andhra Pradesh, raised concerns.
Environmental groups have raised objections, noting that Visakhapatnam is already facing an acute water crisis and that the data center will exacerbate the problem.
As for generative AI, it’s still early days. An MIT report titled “The GenAI Divide: State of AI in Business 2025” reveals that U.S. businesses invested between $35 billion and $40 billion in AI initiatives. However, almost all of them are experiencing little to no return on their investments or any measurable impact on profits. The operational costs and research and development expconcludeitures appear to be too high for businesses to see financial benefit.
AI, as they state, is indeed a developing story.
This story was first published indepconcludeentink.in and republished here with permission.
Ajith Pillai is a Chennai-based journalist and author. During his decades long career he has reported out of Delhi, Mumbai, Chennai, Andhra Pradesh and Kashmir on a range of events related to politics, crime, conflict and social modify. He has worked with leading publications, including The Sunday Observer, Indian Post, The Pioneer, The Week and India Today, where he headed the Chennai bureau. He is currently working on ‘Obedient Editor’, a satirical novel on the life and times of a ‘compromised’ journalist.
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