India’s Data Centre Boom Fuels AI Growth — But Sparks Alarms Over Water and Energy Strain

A Digital Gold Rush in the World’s Fastest-Growing Data Market

India’s rapid embrace of artificial intelligence (AI) and digital technologies is driving an unprecedented boom in data centre construction, reshaping its energy and infrastructure landscape.

Last month, Google announced a $15 billion investment in a cutting-edge AI data centre in Andhra Pradesh — the tech giant’s largest-ever project in India. It joins global leaders like Amazon Web Services (AWS) and Meta, as well as local powerhouses such as Reliance Industries, in a race to establish the computing backbone of the world’s most data-hungry nation.

Even luxury real estate firms have entered the fray, converting prime land into vast server facilities.

According to global real estate consultancy JLL, India’s data centre capacity is set to surge by 77% by 2027, reaching 1.8 gigawatts (GW). Industry forecasts estimate that $25–30 billion will be invested in capacity expansion by 2030.

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India’s Data Boom: Driven by AI and Digital Expansion

India currently generates around 20% of the world’s data, but hosts only 3% of global data centre capacity — a mismatch driving massive investment. By 2028, India is projected to consume more data than any other country, surpassing the U.S., Europe, and China.

This demand is fuelled by explosive mobile and internet growth, government policies requiring local data storage, and the rise of AI tools like ChatGPT, which count India as their second-largest user base.

Financially, the opportunity is clear. Kotak Research notes that India’s data centre construction costs are among the lowest globally — second only to China — while electricity prices remain far cheaper than in the U.S., Japan, or the U.K. The country’s abundant tech talent adds to its competitive edge.

“Just like we capitalized on the IT boom of the 1990s and 2000s, this is another chance to lead globally in digital infrastructure,” said Vibhuti Garg, Director for South Asia at the Institute for Energy Economics and Financial Analysis (IEEFA).

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The Environmental Price of Digital Growth

Behind the boom, however, lies a deepening dilemma. Data centres are notorious for their resource intensity, consuming massive amounts of electricity and water to power and cool their servers.

In water-scarce India, this poses a severe challenge. The World Bank notes that India holds 18% of the world’s population but only 4% of its freshwater resources, making it one of the most water-stressed nations globally.

India’s data centre water consumption is projected to rise from 150 billion litres in 2025 to 358 billion litres by 2030, according to industry estimates. Most facilities are concentrated in Mumbai, Hyderabad, Chennai, and Bengaluru — all cities already facing high water competition.

Advocacy groups, including the Human Rights Forum, have voiced concern over the Andhra Pradesh government’s allocation of public water resources for Google’s upcoming facility in Visakhapatnam, warning that the region is already experiencing acute water shortages.

In response, Google said it employs a “peer-reviewed, context-based water-risk framework” to assess local watershed conditions and minimize impact.

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Experts Warn of “Water Blind Spot”

Despite growing attention to environmental regulations, experts say India lacks explicit water-use policies for data centres.

“Water use remains a significant blind spot in India’s data centre policy framework,” said Sahana Goswami of WRI India, a research institute focused on water and energy systems. “Sixty to eighty percent of these facilities are expected to face high water stress this decade.”

Goswami warned that extreme water shortages could disrupt essential services if data centres are forced to shut down during peak summers — affecting banking, healthcare, and public transport systems that rely on cloud infrastructure.

Both WRI India and experts from the Indian Institute of Science have urged companies to mandate treated or non-potable water for cooling and explore zero-water cooling technologies, which are advancing globally but remain underused in India.

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Rising Power Demand and Carbon Footprint

Water isn’t the only concern. The International Energy Agency (IEA) estimates that India’s data centre electricity consumption will double by 2030, rising from 0.5–1% to as much as 2% of total national demand.

With limited regulation compelling the use of clean energy, analysts warn that much of this additional power could come from fossil fuels, undercutting India’s net-zero targets.

“While several companies are signing renewable power purchase agreements, making clean energy use mandatory would ensure this growth remains sustainable,” said Garg of IEEFA.

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The Balancing Act Ahead

For policymakers in New Delhi, the challenge is clear: fuel the digital revolution without compromising environmental sustainability.

As India aspires to become a global data and AI hub, experts stress the need for innovative resource management, clearer environmental mandates, and public-private partnerships to build infrastructure that is both profitable and planet-friendly.

“In the end, one public good must not be sacrificed for another,” Garg said. “Digital progress and environmental responsibility must go hand in hand.”