Zero‑Tax Incentive for Foreign Cloud Providers

India's finance minister announced a budget measure that offers foreign cloud providers a tax holiday on revenues generated from AI workloads run in Indian data centers and sold to customers outside the country, extending through 2047. The exemption applies only when services are delivered from Indian facilities; sales to domestic customers must be routed through locally incorporated resellers and will be taxed domestically.

Cost‑Plus Safe Harbour for Indian Operators

The proposal also introduces a 15% cost‑plus safe harbour for Indian data‑center operators that provide services to related foreign entities, aiming to make operating costs more predictable for investors.

Major Global Investments in AI‑Focused Data Centers

U.S. cloud giants have already committed substantial capital to expand AI infrastructure in India. Google announced a multi‑billion‑dollar investment to build an AI hub and expand its data‑center footprint. Microsoft pledged a comparable multi‑billion‑dollar plan to grow its AI and cloud presence, while Amazon disclosed an additional multi‑billion‑dollar commitment that brings its total planned spend in the country to around $75 billion.

Domestic Data‑Center Projects Accelerate

Indian‑backed ventures are also scaling up. A joint venture involving Reliance Industries, Brookfield Asset Management, and Digital Realty Trust revealed a plan to invest billions to develop a 1‑gigawatt, AI‑focused data‑center campus in Andhra Pradesh. The Adani Group announced a partnership with Google to invest up to $5 billion in a separate AI data‑center project.

Infrastructure Challenges

Despite the influx of capital, the expansion of data‑center capacity faces constraints such as intermittent power supply, high electricity costs, and water scarcity. Industry observers note that these factors could slow construction and increase operating expenses for cloud providers.

Broader Technology and Manufacturing Incentives

The budget also expands support for electronics and semiconductor manufacturing. A second phase of the India Semiconductor Mission will focus on equipment, materials, full‑stack chip intellectual property, and supply‑chain strengthening. Funding for the Electronics Components Manufacturing Scheme was increased, offering incentives tied to actual production of components used in smartphones, servers, and data‑center hardware.

Tax Relief for Equipment Suppliers

A five‑year tax exemption was introduced for foreign companies supplying equipment and tooling to electronics manufacturers operating in bonded zones, potentially benefiting firms such as Apple.

Rare‑Earth Mineral Development

To address vulnerabilities in critical minerals, the government will support states rich in rare‑earth resources to establish dedicated corridors for mining, processing, research, and manufacturing, aiming to reduce reliance on imports.

E‑Commerce Facilitation

The budget removes the existing value cap on courier exports, a move intended to help small manufacturers, artisans, and startups sell overseas through online platforms, and streamlines the handling of rejected and returned shipments.

Strategic Outlook

Collectively, these measures signal India's ambition to become a long‑term hub for global technology infrastructure, spanning AI cloud services, electronics manufacturing, semiconductor development, and critical mineral production. Success will depend on effective execution, particularly in securing reliable power, water, and regulatory clearances, as global companies assess the country's capacity to sustain large‑scale AI workloads.

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