Why Big Tech is throwing cash into India in quest for AI supremacy
Lured by a big, tech-savvy population, Google and other giants are sinking tens of billions into the Indian market.
NEW DELHI—American tech behemoths are racing to establish leadership in artificial intelligence not just in the U.S., but also around the world. India is welcoming them with open arms.
India has become one of the hottest markets globally for U.S. AI titans looking to cater to the country’s massive and digitally savvy population. Looking to attract more tech investments, the Indian government announced plans over the weekend to give tech firms a 20-year tax break on overseas revenue gleaned from global data services based in India.
The move is part of the Indian government’s push to make the country a major provider of AI services—including low-cost tools to solve local problems—while leaving cutting-edge innovation to deep-pocketed firms in the U.S. and China.
“This will give India the opportunity to become a major AI hub," said India’s technology minister, Ashwini Vaishnaw, on Sunday.
In the past few months alone, U.S. tech companies have unveiled tens of billions in investment in Indian data centers as they race to build AI infrastructure around the world.
In October, Google announced a $15 billion investment in data centers in southeastern India, as well as undersea cable links, in what the company described as its “largest single AI hub outside the U.S." In December, Microsoft unveiled its largest-ever investment in Asia with a $17.5 billion pledge to develop the country’s cloud and AI infrastructure. On the same day, Amazon.com pledged to invest $35 billion across its operations in India up until 2030.
The big U.S. data-center firms—also known as hyperscalers—are drawn to a country whose 1.4 billion consumers are some of the most prolific users of data and AI chatbots.
The Indian subcontinent already uses more mobile data per smartphone than any other region globally, according to a November report from telecom firm Ericsson.
India’s new data-privacy regulations will require companies to store Indian user data locally.
Moreover, some 62% of Indians now use generative AI tools from at least one tech firm, the highest of any market other than Brazil, according to a report published last month by Boston Consulting Group.
“There is no doubt that India is growing more rapidly than most other countries in terms of hyperscale data center capacity," said John Dinsdale, a director at Synergy Research, a firm tracking the data-center build-out of big U.S. tech companies.
Right now, India produces about 20% of the world’s data, but houses 3% of it, according to CareEdge Ratings, an Indian credit-rating company.
But uncertainty about how Indian authorities would tax global firms setting up data centers in India—and what share of their global revenue might be deemed taxable here as a result of that presence—had hung over tech giants, said Himanshu Sinha, head of the tax practice at Trilegal, an Indian corporate law firm.
“The tax liability could have been quite high…and disputes would have arisen," said Sinha.
The announcement removes that uncertainty and incentivizes the tech companies to look beyond serving India’s data needs alone—already a large market—and establish global service centers.
India hopes to be an example for other developing-world countries that have tech-savvy populations but lack the resources to compete with rich nations dollar-for-dollar in developing their own AI ecosystems. The Indian government is hosting a major tech summit later this month, where it’s expected to advance its ideas of how middle-income countries can benefit from AI.
The investment costs involved in being at the frontier of developing foundational models are prohibitive for India, the government said in a recent economic report. India must not squander money trying to beat OpenAI or DeepSeek, officials say, but should instead find cost-effective ways to deploy AI usefully and build an AI-services business.
Indian officials say that India is well-placed to house data centers—which require large amounts of energy—given the country’s investments in renewables in recent years.
Still, some quarters of the government have sounded a note of caution over the pace at which India can realistically add data-center business, given electricity and hardware constraints.
That might come as a relief to those living near the planned data centers. Some communities fear they will lose out as power and water are earmarked for data centers, which need ample supplies of both.
Environmentalists have warned that India’s water-stressed cities could struggle to cope with the additional demand. India’s policymakers are also trying to figure out how the country’s patchwork electricity grid will provide enough power to the new centers.
The country for decades has benefited from global tech firms and American corporations setting up operations in India, hiring workers for back-office jobs like call centers.
But data centers employ only hundreds of people, and Indians have begun to question whether their expansion will deliver new employment. The government of Prime Minister Narendra Modi is under pressure to generate more jobs for the millions of new university graduates entering the job market each year.
Google’s data-center project has faced some of the strongest pushback. The U.S. firm has said the development of data centers will speed India’s adoption of AI technology and meet the country’s surging digital needs.
Rights groups are skeptical. “Far from being the promised engine of jobs, green growth and digital progress," the Hyderabad-based Human Rights Forum wrote in October, “this project represents a looming environmental and economic disaster."
Write to Tripti Lahiri at tripti.lahiri@wsj.com and Rory Jones at Rory.Jones@wsj.com
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