AI supremacy race: Why US tech giants are pouring billions of dollars into India

• US tech giants ramp up AI investments in India, drawn by its vast digital market
• India offers 20-year tax break on foreign revenue from local data services
• India aims to become a key AI hub, emphasizing cost-effective deployment.

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India is quickly emerging as a key market for US technology giants who are boosting their global artificial intelligence expansion beyond America.

According to a report in the Wall Street Journal, India is now one of the "hottest markets" for US with AI giants eyeing the country's 1-billion-plus digital-savvy population.

The India-specific expansion comes as the Centre has stepped up efforts to strengthen the country’s AI ecosystem by announcing a 20-year tax break in the Union Budget on overseas revenue earned from globally delivered data services based locally.

The move aims to draw more foreign tech investment while helping India build a large-scale AI services ecosystem. “This will give India the opportunity to become a major AI hub,” IT Minister Ashwini Vaishnaw said last week.

According to WSJ, the policy is part of a broader strategy where India focuses on cost-effective AI deployment and services, while leaving frontier AI model development to deep-pocketed firms in the US and China.

Earlier, Moneycontrol had said in a report that big tech is pouring billions of dollars into AI and data centre investments in India. Microsoft last year announced a $17.5 billion investment in India while its rival Amazon wrote a $35 billion cheque to focus on AI, exports and job creation.

In October, Google unveiled a $15 billion investment in data centers and undersea cable links in southeastern India, calling it its “largest single AI hub outside US.

Why India?

Hyperscalers — large data-center operators — are drawn to India’s massive data consumption, as per the report.

The Indian subcontinent uses more mobile data per smartphone than any other region globally, according to a November report by Ericsson.

India has also rolled out new data-privacy rules requiring companies to store Indian user data locally.

Meanwhile, 62% of Indians use generative AI tools, the second-highest rate globally after Brazil, according to Boston Consulting Group.

“There is no doubt that India is growing more rapidly than most other countries in terms of hyperscale data center capacity,” WSJ quoted John Dinsdale of Synergy Research as saying.

Despite producing about 20% of the world’s data, India currently stores only 3% of it, according to CareEdge Ratings.

Tax clarity removes uncertainty

Until now, uncertainty over how global revenues would be taxed had discouraged some companies from expanding data-center operations in India.

“The tax liability could have been quite high…and disputes would have arisen,” Himanshu Sinha, head of tax at Indian law firm Trilegal, told WSJ.

The new tax policy removes that ambiguity, encouraging firms to set up global service hubs, not just India-focused infrastructure.

Indian officials see the strategy as a blueprint for developing nations with high digital demand but limited capital for frontier AI research.

The Modi government will host a major technology summit (India AI Impact Summit 2026) later this month in New Delhi to advance this vision.

Officials stress India should focus on practical, low-cost AI applications rather than trying to outspend firms like OpenAI.

Moreover, the China+1 strategy is also playing an important role in redirecting supply chains as multinational companies favour India due to its English speaking workforce, talented pool of engineers, supportive regulatory environment and government schemes that are aiding investments.