You ask an AI chatbot a question. A UPI payment goes through in seconds. A photograph is saved to the cloud. Your digital life feels effortless.
Yet behind each of these actions, rows of servers process information, cooling systems run continuously, and vast amounts of electricity and water keep the digital world moving. What feels invisible on our screens depends on very real physical infrastructure: massive facilities called data centres.
Put simply, a data centre houses the servers and computing systems needed to store, process and transmit digital information. These critical engines of today’s digital world require enormous investment, uninterrupted power and substantial resources to build and operate.
Recently, Gujarat launched the Viksit Gujarat Data Centre Policy 2026–29 in its bid to become India’s data-centre capital. Through the policy, the state aims to create 7.5 GW of data-centre capacity by 2029 and attract an estimated ₹6 lakh crore in investment.
Data centres are increasingly central to a nation’s digital sovereignty, ensuring that critical data can be stored securely within its borders. They also attract investment, create high-skilled employment and provide the computing capacity required for artificial intelligence, cloud platforms and digital innovation.
Gujarat’s ambitions, therefore, matter not only for the state’s economy but also for India’s larger digital aspirations.
So, how is India’s data-centre policy ecosystem taking shape? What distinguishes Gujarat’s approach from those of other states? And can the policy translate its ambitious targets into the infrastructure required to make Gujarat India’s data-centre capital? These are the questions we explore in today’s Policy Mandala.
To begin, let us briefly trace how data centres emerged in India and why they have received growing policy attention in recent years.
India’s data-centre journey began with the National Informatics Centre’s Hyderabad facility in 2008. Policy attention followed in 2016, when Telangana became the first state to introduce a dedicated data-centre policy.
As digital payments, cloud services and artificial intelligence expanded, so did the need to store and process critical data within India. The Union Government responded by proposing a Data Centre Parks Policy in the 2020–21 Budget and releasing a draft national policy later that year.
Other states soon followed, with Uttar Pradesh, West Bengal, Andhra Pradesh and Rajasthan introducing dedicated data-centre policies. Gujarat is the latest to join this growing policy race.
The momentum is visible in the numbers. India’s operational data-centre capacity has more than tripled over the past five years, while investors have committed nearly US$32 billion to new projects in just the last two. What was once a niche infrastructure sector is now becoming one of the fastest-growing pillars of India’s digital economy.
So, what is Gujarat’s new policy and how does it compare to other states?
Gujarat’s new policy aims to attract investment by offering a ₹1 per unit power subsidy, electricity-duty reimbursement, SGST support, stamp-duty exemptions and relaxed building norms. This is similar to other states. But the scale and duration of incentives stand out.
For instance, Uttar Pradesh exempts data centres from electricity duty for ten years, while Rajasthan provides a seven-year exemption. Gujarat extends electricity-duty reimbursement to twenty years and also offers a ₹1 per unit power subsidy for the same period. Projects in Dholera can additionally receive a capital subsidy of 2.5% of eligible fixed investment.
The support is also highly selective. Only projects of 150 MW or more are eligible, while all qualifying projects must source at least 51% of their core electricity use from renewable energy.
Taken together, Gujarat’s policy is more selective and ambitious than most of its peers. It offers unusually long-term support, but directs it towards a small number of very large projects with clear renewable-energy conditions.
But the larger questions remain: Can the policy translate its ideas into action, and is Gujarat ready to support data centres at this scale? Three tests stand out.
The first is the return on incentives. Gujarat has offered long-term subsidies and tax relief which continue for two decades. The incentive quantum is also high. But the policy does not explain how it will measure whether these incentives generate enough investment, jobs and wider economic value.
The second test is water readiness. Large data centres require substantial and reliable water supplies for cooling. Gujarat’s support for captive desalination plants is an innovative response, but it also reveals that water availability may become a serious constraint as hyperscale projects expand, particularly in Dholera.
The third, and most important, is power. The policy requires 51% renewable energy, but does not explain how the enormous power demand associated with 7.5 GW of data-centre capacity will be matched by new generation, storage and transmission infrastructure.
In short, Gujarat has clearly laid out how it will attract data centres. It is less clear on how the infrastructure needed to sustain them will grow at the same pace.
So, what happens next?
Gujarat needs a clear implementation plan for managing the sector’s water and energy demands. Large parts of the state are drought-prone, making it important to clarify and plan how a mix of freshwater, recycled water and desalination will support future data centres.
The policy also needs measurable outcomes. Although it provides for annual review, it does not define clear indicators. Gujarat could track investment realised, operational capacity, jobs, renewable-energy use and water consumption, and link continued incentives to verified performance.
The European Union offers one useful example: data centres report common indicators covering total energy use, renewable power, cooling efficiency and water consumption, creating an evidence base for future policy decisions. Gujarat could build a similar monitoring framework and link continued incentives to verified performance. This could also be implemented at the national level.
For Gujarat, the early signals are encouraging. Reliance Industries’ partnership with Meta for an AI-enabled data centre in Jamnagar suggests that investor interest is already translating into major project announcements.
Investment has begun to flow. The real test now is whether Gujarat can convert these announcements into operational capacity supported by reliable power, sustainable water use and effective implementation. And we will be tracking and keeping you updated with the latest policy developments in India’s data centre ecosystem.
Co-Authored by : Samridh Joshi and Avdhesh Pathak
