India’s digital economy is expanding rapidly, and one sector is emerging as the backbone of this growth. The demand for data centres is rising due to a growing internet user base, the push for data localisation, and the increasing adoption of artificial intelligence. To further support this sector, the government has released a draft of the National Data Centre Policy 2025, which aims to position India as a global hub for digital infrastructure.
Let’s understand the government’s plan and how companies and investors could benefit from it.
What’s Happening?
According to the draft National Data Centre Policy reviewed by Business Standard, the government is considering a tax holiday of up to 20 years for developers who achieve set targets in capacity addition, energy efficiency, and job creation.
The draft has also been circulated to stakeholders for consultation. Its goal is to make India a global centre for cloud infrastructure, AI modelling, and digital services at a time when demand for storage and computing power is soaring.
This announcement is significant as India’s data centre industry has grown at a 24% CAGR since 2019, with 795 MW of new capacity expected by 2027. Occupancy levels are already high at 75–80%, highlighting that demand is outpacing supply.
Check out our detailed report on India’s Data Centre Industry.
Key Highlights of the Draft Policy
The 2025 draft policy introduces a wide range of incentives to boost the data centre industry. Developers who meet targets for capacity, efficiency, and employment could receive a tax holiday of up to 20 years. The government also plans to extend GST input tax credit to capital assets such as construction materials, cooling systems, HVAC, and electrical equipment.
Foreign companies that lease or operate at least 100 MW of capacity may be granted permanent establishment status in India. Alongside this, eligible firms may be encouraged to set up AI development centres or global capability hubs in the same cities where their data centres are located.
Officials believe these measures will not only generate more jobs in India but also strengthen domestic capabilities in advanced technologies across both metropolitan areas and smaller towns.
Infrastructure Gap: A Major Challenge
India’s data centre market is growing quickly, fuelled by AI adoption. However, the country generates 20% of global data but holds only 3% of global capacity. The sector continues to face challenges in land availability, power supply, and connectivity.
Metro hubs dominate the landscape but face high costs and space shortages. Tier-two and tier-three cities lag due to weak fibre networks and unreliable power.
The draft policy seeks to address these bottlenecks by encouraging states to earmark land for data centre parks, ensuring reliable power supply through coordination with central agencies and promoting the use of renewable energy sources.
However, many existing facilities remain outdated and not AI-ready, underlining the urgent need for modern, energy-efficient, and locally engineered solutions that can support edge computing and scalable fibre backhaul.
What Does This Mean to Investors?
On the September 15 (Monday) trading session, data centre stocks rallied with a significant spike in trading volumes. The shares of Anant Raj Ltd, Railtel Corporation of India Ltd, and Bajel Projects gained over 5% following reports of fresh incentives for companies operating in the sector.
These incentives translate into a lower tax burden, easier access to capital credits and higher demand for facilities as more global and domestic players look to set up operations in India. For investors, this could mean stronger revenue growth and improved profitability for companies in the sector. If the policy is executed effectively, data centre stocks are likely to remain attractive for long-term gains.
What’s Next?
The government’s emphasis on data localisation under the Digital Personal Data Protection Act (DPDPA) has already provided a strong boost to local data centres, attracting investments from global giants like AWS, Microsoft, and Google, as well as domestic players such as Reliance Jio and Yotta Infrastructure.
Additionally, the Union Budget 2025 has allocated Rs 20 billion for the IndiaAI mission to develop AI and data centre infrastructure, including GPUs, advanced facilities, and connectivity solutions.
ICRA estimates that India’s operational capacity will increase from about 1,150 MW in December 2024 to nearly 2,000–2,100 MW by March 2027, almost doubling in three years. The growth outlook for the industry remains highly robust.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
