A recent report by PwC estimates that the total data center capacity could go up to 14 GW by the year 2035 based on investment commitments made by big-ticket global and domestic players, as well as a favourable regulatory environment. It also estimates investments worth US$ 70 billion dollars into the industry during this period.
The report titled Transforming India into a trusted global data hub: Future-ready tax considerations for data centers estimates India’s current data center installed capacity to be 1.5 GW, and expects it to grow at an estimated CAGR of about 20–24 percent between 2025–2035. “The total capacity is expected to reach to around 14 GW by 2035, backed by investment commitments from various Indian and global data center operators,” says the report, adding, “The Indian market will witness a host of new investment announcements of up to US$ 70 billion by FY 2035 from large data center operators, real estate developers, and investors.”
Reflecting on the drivers of this growth it says “India’s growth in data center capacity is driven by an exponential increase in data consumption, coupled with an improved regulatory framework and lower cost of business.” It further highlights how the regulatory framework is evolving to create a more conducive business environment for the industry. “Recognition of data centers as infrastructure assets, together with the Digital Personal Data Protection (DPDP) framework and a comprehensive National Data center Policy, signals long-term commitment. State-level regimes are further enabling this positive environment by offering incentives and streamlined approvals that reduce execution friction and bolster investor confidence,” says the report.
It also recommends tax reforms such as construction related GST credits. “The eligibility of ITC on construction activities remains a critical aspect for data centers. Although the law restricts ITC on construction of immovable property, there’s a strong argument that hyperscale data centers should be treated as ‘plant and machinery’, which would allow ITC.” It also suggests tax reforms targeted at attaining sustainability goals saying, “As India’s data centers use a lot of energy, they should be encouraged to shift to cleaner technologies with smart, targeted tax breaks. This could mean allowing accelerated depreciation or investment-linked deductions for green-certified infrastructure and offering carbon credits or tax rebates to facilities that meet credible ESG standards.”
It further says that tax reforms can play a role in encouraging data localization. “Potential measures include tax holidays or reduced corporate tax rates for data centers supporting localisation, enhanced input tax credits for locally procured hardware, and pass-through tax treatment for investments in domestic hosting partners,” giving examples such as, “States such as Andhra Pradesh, Uttar Pradesh, and Karnataka offer attractive incentives to data centers, including capital and land subsidies, reimbursement of operational expenses, and payroll-related benefits.” It says that these incentives will lower compliance costs and support India’s strategic autonomy in the digital domain.
The report also recommends a relaxation in Special Economic Zone (SEZ) laws saying, “Data centers located in SEZs may face practical operational issues, including frequent inspections and procedural requirements, that can disrupt sensitive, high-security environments. To make SEZ incentives truly workable for data center operators, there should be targeted regulatory relaxations such as reducing physical inspections, enabling digital-first compliance processes, and simplifying approval workflows.” It says that these changes would not only improve day-to-day operations but also support the broader goal of establishing dedicated data center economic zones.
