In this context, Budget 2026 took a step to accelerate investment into data centres on Indian soil. Acting on the need to give an impetus to critical infrastructure and boost investments that build and maintain data centres, Finance Minister Nirmala Sitharaman, in her budget speech, announced a tax holiday for foreign cloud firms that use Indian data centres. 

It’s not a short commitment either, set to last over 2 decades. The strategy is to bolster the ecosystem that keeps digital progress going. “I propose to provide a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India,” said Sitharaman. “ It will, however, need to provide services to Indian customers through an Indian reseller entity,” she said. 

Bridging A Gap

India generates nearly 20% of the world’s data, but only hosts about 3% of the world’s data centres. With only 150 data centres in India, out of a global count of 11,000, there is a clear gap. 

Depending on your level of optimism, this flags either a large growth opportunity or a competitiveness gap.

India also ranks low when it comes to data centre investments so far. This move can help bridge that gap with the proposal intending to attract global business and investment by incentivising companies to expand local data storage and processing capabilities. 

As Nitin Bhatt, Technology Sector Leader, EY India put it, this “underscores a strong policy push toward data localisation and domestic infrastructure creation.”

Kudos & Confidence 

India’s data centre capacity is currently 1.4GW as of the second quarter of 2025. It is projected to reach about 8 GW by 2030. Industry confidence could help push up projections. 

“I also propose to provide a safe harbour of 15% on cost in case the company providing data centre services from India is a related entity”, the Finance Minister said in her speech. 

Safe-harbour rules are meant to limit tax disputes by setting an acceptable pricing benchmark. “Extending such a rule to data centres seems like an attempt to balance revenue protection with investment certainty in a fast-growing digital infrastructure sector. It builds confidence,” a consultant at a Noida-based data centre told The Secretariat. 

It also removes a big barrier, which was compliance with India’s Digital Personal Data Protection Act. Till now, there was a trade-off between global-scale cloud infrastructure and data localisation requirements. “This budget resolves that tension,” Shashank Karincheti, Co-founder & CPO of Redacto.ai, explains. “More onshore data processing means consent management becomes enforceable, data principal rights become actionable, and cross-border transfer headaches reduce significantly,” he said. 

Data centres don’t just mean rows of servers, but an entire digital ecosystem that spans cloud services, AI computing, skilled jobs, and many allied industries. Our digital world is built on the backs of these monoliths. 

“In the times to come, data centres will become a huge strength for the nation. They will provide new services for the world and open up new avenues for employment and entrepreneurship in India. For the tax holiday given to data centres I’d like to congratulate the Prime Minister and the Finance Minister,” Ashwini Vaishnav, Minister for Railways, Information & Broadcasting, and Electronics & Information Technology said. 

Seeing Green

For all the talk about sustainability in this year’s budget — for textiles, movement of cargo, passenger systems, and tourism, data centres escaped similar environmental scrutiny. 

This comes days after the latest Economic Survey acknowledged the strain these structures can put on our environment. Buried in the Survey’s analysis was a recognition that data centres are not just capital-intensive assets, but heavy consumers of electricity and water, competing directly with households and industry for scarce resources. 

“AI development is inextricably linked to physical infrastructure. Data centres require large quantities of electricity and water,” the Survey says. 

Although the industry was also expecting sops for green energy, environmental considerations took a back seat to the push for much-needed capacity.

The Bottleneck And The Policy Way Out 

However, capacity creation is not enough. You also have to power the data centres and quench their thirst. “A data centre boom could test resource limits,” an environment expert told The Secretariat. 

The next phase of progress will come with its own bottlenecks, hints of which are already being felt by the industry with concerns about power availability and grid infrastructure. 

“Local data centres are in dire need of structural support, such as infrastructure status and lower import duties on essential equipment so that they can stand a challenge against global hyperscalers,” Ishan Talathi, CEO & Founder, CloudPe told The Secretariat. 

The chapter that comes after these growing pains should focus on renewable sourcing and environmental compliance.

“Considering that the energy component constitutes almost 50% of the operating expenses, it goes without saying that incentives for renewable energy are indispensable for the sustainability of the venture in the long run,” Talathi said. 

There is still much to be desired, but Budget 2026 has been a step in bringing up the level of the industry confidence barometer at a global level.