Institutional capital is chasing Indian data centres, whose growth is moving into the fast lane. India's tally of data centres places it at 6th place in the global pecking order. Investment proposals indicate it could climb higher over the next few years. The capital pipeline has broadened after data centres above an IT load threshold were accorded infrastructure status. This has lowered cost of credit for the sector while easing the environment for FDI. Current investments in data centres dwarf the record of the preceding few years. So, the sector should sustain its demand for local and overseas borrowing.

Along with being labelled communication infrastructure, foreign cloud service providers using data centres in India to serve global users enjoy an extended tax holiday. This apart, states are competing through electricity subsidies, fast-track clearances and easier building by-laws to draw investment. The Centre and responsive states are serious about diverting a chunk of greenfield global data centre projects. The fiscal and policy orientation is structured to provide stability to high upfront capex in computing hardware, energy systems and cooling infra. Costs rise considerably for AI-oriented data centres. India has rolled out the red carpet in an effort to anchor critical digital infrastructure within the country. This is becoming increasingly important as data localisation requirements rise.

This appears to ignore resistance to data centre growth in other countries over energy and water use. There is little evidence of such a pushback in India. Technology is evolving to make data centres sustainable, which should favour India's runway towards AI sovereignty. Work is on for local foundational models, multilingual platforms and compute infrastructure. India needs to participate in the AI race in accordance with its strengths. These include a large pool of skilled technical manpower and natural resource endowments. With environmental guard rails in place, the country should host a bigger slice of AI infrastructure.