India is emerging as one of the lower-cost markets for building large data centres, as the global race to expand computing capacity for artificial intelligence (AI) pushes technology companies to look for cheaper locations.
Construction of a data centre in India costs about $6 million to $7 million per megawatt (MW), compared with roughly $10 million to $14 million per MW in the US and Europe, according to Nomura. The comparison excludes land and computing equipment. Nomura, citing JLL data, said Indian construction costs are about 30–50% lower than developed Asia-Pacific and Western markets.
The difference matters because a data centre is essentially a large, highly specialised building filled with computing equipment. Every additional megawatt represents substantial spending on buildings, electrical systems, cooling and backup infrastructure.
Nomura said India’s lower costs are mainly linked to cheaper labour, relatively inexpensive construction materials and more flexible regulations. It also noted that land prices vary significantly between Indian locations, while access to reliable electricity remains an important constraint.
Demand is rising at the same time. JLL’s August 2026 India data-centre report estimates that operational capacity will increase from 1.6 GW in mid-2026 to 6 GW by 2029. It said first-half 2026 absorption reached 101 MW, more than 20% above the three-year average, with hyperscale projects accounting for 82% of that absorption.
"India’s data centre sector is at an inflection point where demand, capital and technology are converging to drive large-scale infrastructure development. The transition toward AI-led workloads is fundamentally changing the design, scale and economics of data centres across the country. With strong domestic demand and favourable cost structures, India is well positioned to become a key node in the global digital infrastructure ecosystem," Rohan Rao, Partner, Deal Advisory KPMG in India said.
Nomura estimates that more than 15 GW of additional capacity is visible in project pipelines over the next decade and expects India’s data-centre capacity to reach about 7 GW by 2030.
Government incentives are adding another layer to the cost equation.
The Union Budget for 2026-27 proposed a tax holiday until 2047 for foreign companies providing cloud services globally using data-centre services in India, subject to specified conditions. The Finance Bill also provides a 15% safe-harbour provision for certain related-party data-centre services.
States are competing for these investments as well. Andhra Pradesh’s Data Centre Policy 4.0, valid for 2024–29, offers eligible projects a choice between 100% reimbursement of net state GST on capital goods or a 10% capital subsidy on plant and machinery, along with a 100% stamp-duty exemption on the first sale and industrial power tariffs. Projects above 50 MW or with more than Rs 5,000 crore in fixed capital investment can receive tailor-made incentives, including possible land-cost discounts and infrastructure support.
The incentives are already being applied to large projects. In August, the Andhra Pradesh government approved a proposed 1,000 MW data centre project in Anakapalli with an investment of Rs 85,200 crore. The package included a capital subsidy, SGST reimbursement, power-tariff support and exemptions from transmission and wheeling charges, subject to specified limits.
Telangana is also seeking large AI-focused facilities. In January, the state government announced an agreement with UPC Renewables and Volt Data Centers for a 100 MW AI data centre in Hyderabad, backed by an investment of Rs 5,000 crore and a dedicated 100 MW renewable-energy plant.
