New Delhi: India’s growing data-centre industry has sparked debate over whether states are receiving sufficient economic and social benefits in return for offering land, electricity subsidies, tax exemptions and other incentives to attract technology companies.
Speaking on The Wire Talks, Sharmila Chavaly, a former civil servant and adviser at Climate Policy Initiative India, argued that India needs data centres for regulatory compliance and digital infrastructure but should negotiate stronger commitments from investors on environmental protection, resource use and community development.
“The question is not whether to build data centres, but on what terms,” Chavaly said, calling for greater accountability from companies benefiting from government incentives.
Why India Needs Data Centres
Data centres are specialised facilities that store, process and distribute digital information. Their operations require substantial electricity and cooling infrastructure, with water consumption varying according to the technology and cooling systems used.
Chavaly identified regulatory requirements, investment and the growing demand for digital services as key reasons for expanding data-centre capacity in India.
She cited requirements imposed by regulators such as the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI) concerning the storage and processing of certain financial and insurance-related data in India.
Data centres can also improve the speed of digital services by reducing the distance information must travel between users and computing infrastructure.
However, Chavaly argued that attracting investment should not be the only policy objective, particularly when projects receive substantial public incentives.
Concerns Over Water, Electricity and Employment
One of the central concerns raised in the discussion was the pressure large data centres can place on local resources.
Facilities require reliable electricity supplies and effective cooling systems. In water-stressed regions, additional demand could intensify competition for water between industrial projects and local communities.
Chavaly also questioned the long-term employment benefits of these projects compared with traditional manufacturing investments. While construction can generate temporary jobs and some facilities require specialised technicians, permanent staffing needs may be relatively limited compared with the scale of investment.
She noted that high-value equipment, including servers and graphics processing units, may be imported, limiting the extent to which the investment automatically generates domestic manufacturing activity.
According to Chavaly, governments should therefore assess not only the headline investment figure but also the project's lasting contribution to employment, local businesses and public finances.
Visakhapatnam Project Highlights Environmental Questions
The discussion also examined a proposed large-scale data-centre project involving Google and the Adani Group in Visakhapatnam, Andhra Pradesh.
Environmentalists and local communities have raised concerns about its potential impact on water resources and the surrounding ecology. Chavaly said the project's proximity to a protected natural area and questions about the adequacy of environmental standards highlighted the need for clearer safeguards tailored to data centres.
She argued that environmental commitments should be specific, publicly available and independently monitored rather than based solely on broad assurances from investors.
Water consumption, electricity requirements, cooling methods and the project's potential ecological effects are among the issues that require scrutiny.
The project's legal and regulatory status, including any court directions or construction restrictions, should be checked against the latest official records before publication.
Malaysia Offers a Different Approach
Chavaly pointed to Malaysia's Green Pathway initiative as an example of linking investment incentives with resource-efficiency requirements.
According to her account, the programme offers faster grid connections while encouraging data centres to adopt more efficient technologies and closed-loop water systems. Recycled wastewater can help reduce dependence on drinking-water supplies.
She said this approach demonstrates how governments can compete for investment while also setting conditions to limit environmental pressures.
The discussion also referred to approaches in the United States and the United Kingdom, where policies involving tax concessions, grid connections and contributions towards local communities have been explored.
Chavaly argued that Indian states could consider similar arrangements when negotiating with technology companies.
Tamil Nadu Looks Beyond Subsidy Competition
Tamil Nadu was highlighted as another example of a state seeking to distinguish its data-centre strategy from competition based primarily on financial incentives.
Chavaly described the state's interest in using its industrial infrastructure, renewable-energy potential and regional development opportunities to attract suitable investments.
Rather than concentrating exclusively on large facilities in already established hubs, a distributed network of data centres could help spread infrastructure development across different parts of the state, although larger facilities may still be required for some applications.
She said Tamil Nadu's approach reflected an effort to compete through infrastructure readiness and renewable-energy availability rather than simply offering increasingly generous concessions.
The long-term results of this strategy will depend on implementation and the commitments secured from investors.
Experts Call for Greater Accountability
Chavaly argued that states should negotiate measurable commitments from data-centre companies in exchange for long-term tax benefits, discounted land and preferential access to electricity infrastructure.
Possible measures include payments linked to tax concessions, contributions to local education and social services, greater use of renewable energy, recycled-water systems and transparent reporting of resource consumption.
Such conditions, she argued, would help governments evaluate projects according to their long-term public value rather than their announced investment size alone.
India's data-centre expansion is likely to remain important as digital services, cloud computing and artificial intelligence increase demand for computing capacity. The policy challenge is to ensure that this growth is accompanied by responsible resource management and tangible benefits for surrounding communities.
Chavaly's central argument is that India can continue attracting data-centre investment without accepting every proposed concession. Clear standards, transparent monitoring and enforceable commitments could help balance technological growth with environmental protection and public interest.
