India’s data centre capacity could reach 14 gigawatts by 2035. The government, through Budget 2026, is trying to attract large data centres (hyperscale facilities) by offering affordable land, tax breaks, and reduced electricity rates. According to a PwC report, this sector could attract approximately $70 billion in investment by 2035. But the question is, can this rapid growth be sustained while maintaining environmental balance?
Data centres are massive consumers of both electricity and water. Services like AI chatbots, UPI, video streaming, and generative AI run on them. Currently, 15-20% of India’s data centre capacity is used for AI, which could increase to 40-50% by 2030. This means higher electricity consumption, more heat generation, and a greater need for advanced cooling systems.
India’s Opportunity
Experts say India is still in the early stages of this sector, so it’s possible to build green, sustainable data centres from the outset. Making changes later significantly increases costs.
Electricity and Water: The Biggest Challenge
A 1-megawatt data centre can use approximately 68,500 litres of water per day just for cooling. Cities like Mumbai already face severe water shortages. Therefore, experts are calling on the government to subsidise green technologies such as advanced cooling systems, battery storage, and energy-efficient systems.
Industry Demands
- Granting data centres critical infrastructure status
- More incentives for using renewable energy
- Customs duty exemptions for green data centres
- Relief in electricity transmission charges
- Affordable funding through green bonds
- Transparent reporting on water and electricity usage (PUE, WUE ratings)
Emphasis on Green Power
Industry experts say that if the government promotes a hybrid model combining solar, wind, and storage, data centres can receive 24/7 green power. This will reduce pollution and make the sector more sustainable.
The Way Forward
The 2026 budget is expected to see the government introduce a clear, robust national policy for data centres, enabling India to become an AI and digital hub without harming the environment. All eyes are now on February 1, when Finance Minister Nirmala Sitharaman will present the budget.
