India Offers Tax Breaks Until 2047 to Attract Cloud Computing Giants

SadaNews - In a move that reflects its ambition to become a global hub for artificial intelligence infrastructure, India announced an unprecedented incentive package aimed at attracting global cloud computing giants, with tax exemptions extending until 2047.

During the annual budget presentation in Parliament, Indian Finance Minister Nirmala Sitharaman revealed a proposal granting foreign cloud computing companies a complete tax exemption on revenues generated from services sold outside India, provided that these services are operated from data centers within the country.

As for services provided to the local market, they will be marketed through local distributors and will be subject to Indian taxes, according to a report published by "Tech Crunch" reviewed by "Al Arabiya Business".

The budget also included a proposal for a "safe harbor" of 15% based on a cost-plus-profit principle for Indian data center operators providing services to affiliated foreign companies, in an attempt to encourage rapid expansion in this sector.

A Global Race for AI Infrastructure

This announcement comes at a time when major American tech companies, such as "Amazon", "Google", and "Microsoft", are racing to expand their global data center networks to meet the growing demand for artificial intelligence applications.

India emerges as an attractive destination due to its abundance of engineering talent, increasing local demand, and its efforts to serve as a strategic alternative to the United States, Europe, and some Asian markets.

"Google" announced last October an investment of $15 billion to build a central AI hub and expand its infrastructure in India, the largest commitment it has made in the country to date.

For its part, "Microsoft" pledged to invest $17.5 billion by 2029, while "Amazon" raised the volume of its planned investments to about $75 billion by 2030.

Local Expansion and Huge Ambitions

Domestically, the Indian data center sector is witnessing increasing momentum.

Digital Connexion, backed by "Reliance", "Brookfield", and "Digital Realty", announced plans to invest $11 billion to create a dedicated AI data center complex with a capacity of 1 gigawatt in Andhra Pradesh.

The "Adani Group" also unveiled its intention to invest up to $5 billion in partnership with "Google" in a similar project.

Energy and Water Challenges

Despite these ambitions, the expansion faces real challenges, most notably the shortage of electricity supply, high energy costs, and water scarcity, factors that could hinder the operation of energy-intensive AI workloads and increase operational costs.

Experts believe that including data centers among strategic sectors enhances investor confidence, but it requires swift addressing of logistical and regulatory challenges at the state level.

A Long-Term Bet on "Big Tech"

According to estimates from Indian research centers, data center capacity in the country is expected to exceed 2 gigawatts by 2026, compared to just over 1 gigawatt currently, with the possibility of doubling to more than 8 gigawatts by 2030, driven by investments exceeding $30 billion.

However, some analysts warned that allowing foreign companies to make tax-exempt profits until 2047 represents a strategic bet on global tech giants, which may place smaller local players in competition with limited profit margins.

Semiconductors and Rare Earth Metals

Alongside artificial intelligence, the budget focused on enhancing India’s role in manufacturing electronics and semiconductors by launching the second phase of India's semiconductor mission and increasing allocations for the electronics components manufacturing program to 400 billion rupees.

The government also announced support for the establishment of rare earth mineral corridors in several states, in an attempt to secure vital supply chains for electric vehicles, electronics, and defense industries amidst increasing restrictions on global supplies.

Ambition Requiring Precise Implementation

These measures reflect India's endeavor to establish itself as a long-term global technology hub, spanning from cloud computing to advanced manufacturing and strategic minerals.

However, the success of this strategy, according to observers, will remain contingent upon the government's ability to translate paper incentives into sustainable infrastructure capable of supporting the age of artificial intelligence.