Budget 2026: Data centres bat for green energy, funding boost as AI reshapes industry

Representative image

• India's data centers seek renewable energy incentives, funding in Budget 2026.
• Tech giants Google, Microsoft, and Amazon announce major investments in India.
• Industry seeks multi-year contracts, relief from double taxation for foreign cloud firms

Did our AI summary help?

India’s data centre industry is pushing for incentives on renewable energy usage, funding support and multi-year bankable government contracts in the budget for the financial year 2026-27, which will be presented on February 1 .

The demands follow a landmark year in which data centres emerged vital to India’s AI ambitions, drawing record investment from global tech giants.

The budget is likely to prioritise artificial intelligence and data centres, as the government is keen to attract far more global investment in the AI-ecosystem.

India generates nearly 20 percent of the world’s data, yet hosts only about 3 percent of data centre capacity, offering a massive investment opportunity.

In the December quarter, Google announced a $15-billion investment to set up a an AI hub in Visakhapatnam.

Microsoft has committed $17.5 billion to accelerate the country’s cloud and AI infrastructure, skilling and sovereign digital capabilities.

Amazon is investing $35 billion in India over the next five years, boosting its businesses from quick commerce to cloud computing.

Where does the industry stand?

Though the IndiaAI Mission established a strong policy foundation, the demand for AI compute has already outpaced initial projections, said Sunil Gupta, Co-Founder, CEO & MD, Yotta Data Services and chairman, ASSOCHAM National Data Centre Council.

“Expanding both the scale and scope of IndiaAI compute funding will be important to ensure timely access to infrastructure. Also, addressing cash-flow and contracting constraints is equally important,” he said.

If the government enables bankable, multi-year contracts and public sector workloads, it will improve access to capital, allow better capacity planning and more competitive pricing, Gupta said.

“From an investment and sustainability standpoint, a combination of accelerated depreciation, access to sovereign green bonds, and incentives linked to renewable-energy usage will be equally critical,” he said.

Renewable energy incentives, funding support

While AI-led demand has led to big growth in data centre capacity, it has triggered to a spike in energy and resource consumption. AI has changed the economics of data centres.

According to technology research and advisory firm Greyhound Research, power and electrical infrastructure is the largest capex block at around 35 to 45 percent. Cooling and thermal management is at around 15 to 20 percent and can climb to roughly a quarter for AI heavy builds.

“This is the stack that Budget 2026 should target. Predictable multi-year power economics, streamlined open access, and rationalised levies matter more than generic incentives. Support for advanced cooling and efficiency upgrades matters more than broad slogans,” said Sanchit Vir Gogia, CEO and Chief analyst at Greyhound Research.

“Depreciation and tax treatment should reward resilience infrastructure, not just compute… Budget 2026 should treat data centres as an infrastructure risk management priority for AI, not as a technology incentive category.”

Hyperscalers want relief from ‘double’ taxation

Though local data centre operators provide hosting, colocation, and compute services to global CSPs on a principal-to-principal, arm’s length basis, there are concerns that such arrangements may be treated as creating a fixed place Permanent Establishment (PE) of the foreign CSPs in India.

This will potentially lead to double taxation and profit attribution disputes, according to software and technology industry body Nasscom.

“Here, any further attribution of income to foreign CSPs would result in double taxation and significant compliance uncertainty. This risk has a bearing on investments by several global cloud providers and data centre investors,” Nasscom said in its pre-budget note.

The Bottom line

The year’s budget is as an opportunity for the government to expand its support for sovereign-grade data centre infrastructure through frameworks that strengthen data localisation and regulatory clarity, AS Rajgopal, MD and CEO, Nxtgen Cloud Technologies, said.

“The Budget can play a catalytic role by recognising data centres as strategic national infrastructure underpinning India’s digital and AI-led growth,” he said.

Growing cloud adoption, coupled with the expansion of global capability centres and the rollout of 5G, will make robust data centre infrastructure even more critical, Vishnu S, Head of product and marketing at E2E Networks said.

Also read: Inside India’s AI data-centre boom: What it takes to build one

Analysts believe India’s data centre investment momentum is expected to remain strong, underpinned by rapid digital adoption, data localisation requirements, sustained commitments from global hyperscalers, and accelerating AI-led compute demand.

"The Union Budget 2026–27 is expected to place renewed emphasis on operationalising the National Data Centre Policy, with a focus on centrally coordinated, long-term tax exemptions and fiscal incentives. Policy measures are also likely to prioritise reliable power access, renewable energy integration, and energy-efficient infrastructure standards to improve cost competitiveness and sustainability," Siddharth Tipnis, partner and technology sector leader, Deloitte India, told Moneycontrol.