India isn’t just talking about AI leadership anymore — it’s underwriting it

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TLDR

India’s Union Budget 2026 places data centres at the centre of its AI and cloud ambitions by offering foreign cloud and AI service providers a 21-year tax holiday, running until 2047. The move aims to attract hyperscalers, localise global compute workloads, and position India as a competitive alternative to regional data hubs like Singapore. While the incentive promises long-term capital inflows and AI capacity, its success will hinge on execution—especially power availability, land access, and regulatory clarity.

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India’s Union Budget 2026 marks a decisive shift in how the country views digital infrastructure. Data centres, once treated as back-end utilities, are now being positioned as strategic national assets—critical to India’s ambition of becoming a global AI and cloud powerhouse.

The centrepiece of this push is a 21-year tax holiday for foreign companies that use data centres located in India to deliver cloud and AI services to global clients. Income earned from such services will be exempt from tax until 2047, offering rare long-term certainty in a sector defined by heavy upfront capital expenditure and long payback cycles.

The logic is straightforward. Advanced AI systems, from large language models to real-time enterprise analytics, depend on massive, reliable compute infrastructure. By encouraging hyperscale data centres to be built on Indian soil, policymakers hope to anchor the AI value chain locally rather than exporting it to overseas hubs.

The Budget also attempts to resolve a long-standing friction point for global cloud players: tax uncertainty around cross-border services and transfer pricing. Safe harbour provisions for related-party transactions are intended to simplify compliance and reduce the risk that serving global workloads from India triggers complex tax disputes.

If the policy works as intended, India could see a surge in investment across not just data centres but also power, networking, cooling, cybersecurity, and AI-led services. Supporters argue this could strengthen digital sovereignty, lower latency for global services, and create high-skill employment at scale.

However, the bet is not without risk. Data centres are power-hungry, land-intensive, and operationally complex. Without parallel progress on reliable electricity, renewable integration, water use, and state-level clearances, tax incentives alone may not be enough. There is also the question of how domestic cloud providers will compete as global giants deepen their presence.

Still, Budget 2026 signals a clear intent: India wants to move from being a consumer of global AI infrastructure to a host of it. Whether this fiscal gamble pays off will depend less on the generosity of the tax break and more on how quickly policy ambition translates into physical, scalable capacity on the ground.