Zero tax, $200 billion dreams: India wants to power world’s AI infrastructure

If you want a glimpse of the future, follow the money that’s being pumped into AI datacentres. In the US, for instance, OpenAI’s Stargate data centres capacity under development will exceed 5-GW and power over 2 million chips, with $500 billion intended investments over four years. 

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Closer to home, where artificial intelligence workloads are multiplying faster than GPU inventory can keep up, India wants to plug that AI-fuelled future directly into its soil.

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At the heart of this ambition is a bold new proposal made in the Union Budget 2026. Where India’s Finance Minister Nirmala Sitharaman announced a tax holiday until 2047 for foreign cloud services that run workloads from Indian data centers – so long as the customers are outside India. 

It’s a move similar to the ones made by Dubai’s free zones and Singapore’s offshore finance, where India’s attempting to not tax what it wants to attract. The goal? To become the go-to geography for the world’s AI compute needs.

Also read: Dell and NVIDIA combine to power NxtGen’s largest India AI factory

Tax-free data exports aren’t the only carrot being dangled. The Indian government has proposed a 15% safe harbour margin for Indian data centre operators servicing their foreign arms – offering clarity and comfort to hyperscalers wary of transfer pricing disputes. It’s a package designed to pull in billions of dollars of infrastructure capital, and the early signals are promising.

Also read: India Semicon Mission 2.0: Key reactions from tech on Budget 2026

Google, Microsoft, and Amazon have all announced mega-investments over the past year: $15 billion, $17.5 billion, and $35 billion respectively, to build out AI and cloud infrastructure across India, according to Techcrunch. Domestic heavyweights aren’t far behind in this buildout race, with Reliance’s Digital Connexion JV betting $11 billion on a 1-GW data centre campus in Andhra Pradesh, while Adani is partnering with Google on a $5 billion AI data centre play. Suddenly, “data centre park” is the hottest new buzzword in Indian real estate.

Despite all this raw ambition, India still has to contend with some serious physical realities like electricity and water – stuff that’s harder to optimize than an LLM. AI data centres are famously power-hungry and heat-intensive. Keeping racks of GPUs cool in a tropical climate is no joke – and doing it sustainably, can be insanely difficult. Power and water stress in key regions is a serious headache for cooling-intensive infrastructure needed to support AI data centres.

Still, India is playing a long game. Union Minister Ashwini Vaishnaw sees the 2047 tax holiday as a generational bet. “For the fifth industrial revolution, for the AI economy, we need to have the AI infrastructure within our country,” he said, during a press conference after the Union Budget 2026. According to the Union Minister, total data centre investments in India could surge from $70 billion today to $200 billion in the near future.

With one of the world’s largest engineering workforces and a growing appetite for digital services, India wants to move beyond being a hub for outsourced software to becoming the physical substrate of global AI.

Of course, building the world’s AI basement is no small feat. But if the power and water utilities are managed and the incentives hold firm, this can redefine what India AI means going forward.

Also read: Before AI takes over, fix the wiring: Tata Communications’ infrastructure warning

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Jayesh Shinde

Executive Editor at Digit. Technology journalist since Jan 2008, with stints at Indiatimes.com and PCWorld.in. Enthusiastic dad, reluctant traveler, weekend gamer, LOTR nerd, pseudo bon vivant. View Full Profile