India’s US$100bn investment in AI data centres raises environmental concerns

India’s US$100bn investment in AI data centres raises environmental concerns

A report from commercial real estate services and investment firm, CBRE Groupindicates India’s data centre investments will surpass $100 billion in value by 2027, despite reduced expansion in other regions due to environmental and power concerns. According to Channel News Asia‘s (CNA) series, ‘India’s AI Push’, India is pressing ahead with the development of its AI data centre market, positioning the country as an important global player in AI infrastructure.

In September 2025, OpenAI announced plans to develop a large-scale one gigawatt (GW) AI data centre in India, with technology giants like Google, Meta, Microsoft, and Amazon also announcing AI-related investments in the region. Domestic firms like Adani, the Tata Group, and Reliance are also joining the data centre race in the region.

India stands out from other countries

The number of AI users in India has increased rapidly over the last year, plus the country is now home to the second-largest developer community in the world. As other regions cut back on data centre expansion because of resource and environmental concerns, India’s data centre surge goes against the grain.

To operate sufficiently, large-scale data centres require colossal amounts of fresh water to cool their servers and networking equipment that generates high temperatures while processing data. They also require huge quantities of power, with many consuming tens of megawatts of electricity, equivalent to the energy use of a small town, in some cases.

The APAC region has seen constraints on data centre production, with the Malaysian state of Johor requesting companies suspend any expansion of water-cooled data centre projects until at least mid 2027. Meanwhile, Singapore has also placed a temporary halt on any DC projects from 2019 to 2022.

According to CNA, there were 153 data centres in India as of October 2025, an increase of 10% over three years. The combined capacity of these centres was 1.7GW, enough to theoretically power around 1.7 million homes. The number is expected to grow to 8GW by 2030.

With extreme water shortages affecting India, experts and critics have warned an impending AI data centre boom could place severe strain on local communities, negatively affecting the country’s environment and society.

“Aggressive incentives” attracting AI investment

Government figures reveal India has approximately one billion internet users, with 700 million using AI in some form. India is only behind the US for the number of AI products users, a important factor in why OpenAI has established itself in the country, and Anthropic set to follow suit later this year.

Speaking to CNA, Shweta Rajpal Kohli, president and CEO of the Startup Policy Forum, said, “the arrival of players like Anthropic and OpenAI signals that India is now viewed as a growth market”.

Central government incentives have played an important part in this move, according to Kohli, with offers for new data infrastructure “difficult to refuse.” One such incentive was put forward by India’s government in September 2025, proposing tax exemptions for data centres for up to 20 years, as well as a range of other attractive incentives.

Some state governments have also offered “heavily subsidised land” close to technology parks, some with discounts as much as 50%, plus further tax breaks. In a time when AI data centre programmes are facing stringent restrictions elsewhere in the world, such measures are particularly appealing to investors. In the US, protests have delayed, or even ended data centre projects worth around $54 billion. An Indiana-based 1GW Google data centre was stopped in its tracks in September 2025, just a few weeks prior to Google heavy investment in India, raising the question that other countries may be missing out while India is seizing opportunities.

India betting big on AI data centres

India’s data protection policies and localisation strategy are integral to its investment in AI data centres, with the government encouraging tech companies to retain Indian user data inside national borders.

There is currently a large imbalance between how much data India produces and how much infrastructure it has to store it. India generates around one fifth of the world’s data, but only stores around 3%. As a result, more domestic data centres are needed for local data processing to eliminate reliance on foreign infrastructure.

Geopolitical uncertainty is also why India seeks longer-term investment at home. With the Trump administration imposing steep tariffs on Indian goods and tightening H-1B visa rules, it’ now harder for Indian companies to rely on the US, making domestic AI data centre investments an advantage for Indian companies.

Semicon and AI companies benefit from India’s data centre boom

India’s semiconductor industry is set to be a winner from the country’s AI data centre investments, as local demand for lower-cost semiconductors is expected to surge. Shashwath TR, co-founder and CEO of Indian semiconductor company, Mindgrove Technologiessaid, “it means more compute power, more storage, and, crucially, greater impetus for Indian tech companies to rethink how chips integrate in the entire hardware stack.”

“This goes beyond advanced chips to all the surrounding infrastructure, from power and thermal management to networking and other specialised uses,” he said.

AI companies such as OpenAI and Anthropic will also benefit, as both are attracting Indian customers, creating a surge of new AI applications. Industry observers will note similarities with how Android became the base for smartphone applications around the world.

Where there are winners, there will of course be losers in India. For instance, there are growing concerns about the technology’s environmental impact, with water use by data centres forecast to rise sharply. In turn, this may put strain on already-limited resources in coastal cities like Chennai and Mumbai. Electricity demand is also expected to grow, with an S&P report expecting demand for power to grow almost five-fold by 2030. Fossil fuel use may increase as a result, with coal already accounting for almost 50% of the country’s electricity generation.

The Indian government is currently in talks to create a greener data centre ecosystem. Shweta Rajpal Kohli said: “A national data centre policy is under discussion, and states like Tamil Nadu and Maharashtra have embedded green and sustainability norms early.”

The main challenge that persists will be water management. However, desalination, the process of removing salt and minerals from seawater to produce fresh water, may offer a solution. There are three desalination plants currently in operation in Chennai, while Mumbai is currently developing one, according to reports.

Concern over environmental risks and resource constraints remain high, but it seems nothing will get in the way of India’s long-term AI ambitions and the expansion of its domestic AI infrastructure.

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