States to Link Incentives to Jobs, Power and Water Availability

As India prepares a dedicated policy for data centres amid rising investments in artificial intelligence (AI), NITI Aayog’s Frontier Tech Hub has proposed a framework requiring states to assess projects on electricity and water availability, environmental safeguards and measurable economic benefits rather than investment commitments alone.

The framework recommends that data-centre developers prepare a Power Readiness and Ramp-up Plan with electricity distribution companies and state transmission utilities before receiving approvals. Projects requiring more than 20 megawatts of electricity should have automated demand-response capabilities and integration with State Load Dispatch Centres. Additional electricity loads should be approved only after the necessary infrastructure is operational.

The framework also proposes that states calculate a project’s net economic contribution after accounting for subsidies, land assistance, electricity support and infrastructure costs. Incentives should be linked to measurable outcomes, including employment, local procurement, research, skill development and renewable-energy use. Payments could be suspended if developers fail to meet their commitments.

For water management, states should assess availability over a 20–30-year period, taking into account groundwater, surface water, municipal supplies, treated wastewater and competing demands from households and agriculture. Data-centre projects should not reduce reliable water supplies for existing users.

Environmental Safeguards Amid Rapid Expansion of AI Infrastructure

The proposed framework recommends identifying suitable zones for data centres and restricting development in environmentally vulnerable areas. Large campuses should undergo community impact assessments covering water consumption, traffic, emissions, noise, waste management and local employment.

It also calls for greater use of treated wastewater, independent verification of water sources in water-stressed areas, and regular monitoring of electricity and carbon efficiency. Renewable-energy and battery-storage claims should be recognised only after the relevant infrastructure becomes operational and its performance is verified. The Ministry of Electronics and Information Technology (MeitY) is proposed as the nodal ministry for a centralised compliance audit mechanism.

The recommendations come as India’s data-centre industry expands rapidly. According to real estate consultancy JLL, the country’s capacity stood at approximately 1.6 gigawatts in mid-2026 and could reach 6 GW by 2029, requiring an estimated $110 billion in investment.

Google has announced a $15-billion AI infrastructure investment in Visakhapatnam, while Amazon and Microsoft are also expanding their presence in India.

On October 14, Union Minister of State for Electronics and IT Jitin Prasada said India was developing a dedicated data-centre policy. He cautioned that rising electricity demand should not increase costs for ordinary consumers.

The framework seeks to balance investment and technological growth with resource availability, environmental protection and tangible benefits for local communities.