Context: India is witnessing a data-centre investment boom, with Google, Meta, Amazon and Microsoft committing billions of dollars; the government expects nearly $200 billion investment over the next decade.
- States are offering incentives to attract data centres, but rapid expansion is creating pressure on electricity, water, transmission infrastructure and local temperatures.
Rapid Expansion and Rising Energy Demand
- India’s data-centre capacity has increased from 520 MW (2020) to ~1.5 GW currently and is projected to reach 6.5 GW by 2030.
- Electricity consumption by data centres is expected to rise from ~13 TWh (2024) to ~57 TWh by 2030.
- The Ministry of Power estimates that Artificial Intelligence (AI) could add 26.3 GW of new electricity demand by 2031–32.
- The challenge is therefore not merely generation capacity but whether the grid and transmission system can reliably deliver this additional demand.
Water Stress: A Major Constraint
- A 100-MW data centre consumes ~2 million litres of water daily, equivalent to the daily consumption of around 6,500 households.
- India's data centres consumed an estimated 150 billion litres of water in 2024–25, projected to exceed 358 billion litres annually by 2030.
- The problem is particularly significant because data centres are increasingly located in water-stressed regions: Rajasthan extracts 147.11% of annual groundwater recharge, several Maharashtra units are semi-critical, and 16 Telangana districts have been identified as groundwater-stressed.
- Hyderabad experienced a 20% decline in surface-water availability during summer 2024, while Mumbai’s reservoirs were at only 44.5% capacity in March 2026.
- Existing State policies generally do not mandate public disclosure of water consumption, hydrogeological assessment or safeguards against competition with agricultural and municipal water demand.
Electricity and Transmission Constraints
- India's electricity system is already experiencing high demand; Maharashtra's peak demand reached 27,230 MW in April 2026, a record for the State utility.
- 220-kV grid interconnection can involve waits of around two years, delaying data-centre projects.
- India curtailed around 300 GWh of renewable electricity in Q1 2026 because transmission networks could not absorb it.
- India has achieved only around 80% of its annual transmission targets over the past five years; about one-fourth of major transmission schemes are at least a year behind schedule.
- Around 20 GW of renewable capacity faces connectivity delays exceeding four months, particularly affecting Rajasthan and Gujarat.
- Since data centres require 24×7 reliable electricity, inadequate renewable transmission can force greater reliance on coal-based power, increasing emissions.
Data Centres and Urban Heat
- Data centres consume electricity but also generate substantial waste heat, increasing local thermal stress.
- A 2026 University of Cambridge study, using two decades of NASA satellite data, found an average 2°C increase in land-surface temperature within a 10-km radius of data centres, with extreme cases reaching 9.1°C.
- This creates a climate–energy feedback loop:
Data centres → waste heat → higher ambient temperature → greater cooling demand → higher electricity use → potentially higher emissions → further warming. - This is particularly concerning in already heat-stressed cities such as Mumbai and Hyderabad.
Governance Gap
- State data-centre policies commonly provide electricity-duty exemptions, transmission-charge waivers, stamp-duty concessions and fast-track clearances, but environmental conditions remain limited.
- Most major State policies do not require grid-impact assessments, mandatory renewable sourcing or thermal-load assessments before commissioning.
- Telangana classifies data centres as “essential services”, ensuring uninterrupted electricity even during shortages, despite significant groundwater stress.
- Maharashtra reduced its renewable-energy requirement for core data-centre operations from 100% to 51% in June 2026.
- Gujarat’s Data Centre Policy 2026–29 requires at least 51% green-energy sourcing, while Karnataka is reviewing its policy due to water and energy concerns; Tamil Nadu has linked incentives to renewable-energy compliance.
- However, even where standards exist, monitoring and enforcement remain weak.
Risk of Socialising Infrastructure Costs
- Large data centres may require substantial public investment in grid and transmission infrastructure.
- If these costs are not appropriately allocated, they may ultimately be transferred to electricity consumers through higher tariffs.
- Hence, data-centre policy must balance attracting investment with ensuring that private benefits do not create socialised environmental and infrastructure costs.
What Should Change?
1. Climate-Intelligent Power Markets
- India should develop power markets that separately value ramping capacity, storage and demand response, enabling data centres to better manage their large and continuous electricity requirements.
2. Battery Storage
- Battery storage at renewable-energy pooling stations can reduce renewable-energy curtailment; an estimated 3–4 GW of two-hour storage could have absorbed much of the renewable electricity curtailed in early 2026.
3. Better Siting
- Coastal locations could offer advantages through proximity to offshore/near-shore renewable energy and seawater-based cooling, potentially reducing pressure on freshwater resources.
- However, current concentration remains around established technology hubs such as Mumbai, Hyderabad, Bengaluru and the National Capital Region, where resource stress is already significant.
Need for a National Sustainability Framework
- India needs a national framework for sustainable data centres with enforceable minimum standards for:
- Renewable-energy sourcing
- Water consumption and public disclosure
- Grid-impact assessment
- Thermal-load assessment
- Energy efficiency and storage
- A common framework would provide predictability for investors while protecting consumers and local ecosystems.
- An AI Energy Star rating has also been suggested to enable comparison of the energy efficiency of AI models/facilities.
Data Centres: A data centre is a specialised facility housing servers, storage systems and networking equipment that process, store and transmit digital information. They are increasingly treated as critical digital infrastructure, supporting cloud computing, AI, financial services, e-commerce and digital public infrastructure.
