India’s Data Centre Boom meets its Climate Reality

Context:

India’s rapidly expanding data-centre industry is attracting large investments and strengthening its digital sovereignty. However, its growing demand for electricity, water and land could intensify grid congestion, water scarcity and urban heat unless supported by enforceable sustainability standards.

Why are Data Centres Important?

• Data centres are specialised facilities that store, process, and manage digital information, forming the backbone of cloud computing, artificial intelligence (AI), fintech, e-commerce, and digital governance. 
• Data centres house servers, storage and networking equipment required to process and store digital information. Their expansion is being driven by:
  • Artificial intelligence and cloud computing
  • Digital India, UPI, e-commerce, 5G and Internet of Things
  • RBI’s payment-data localisation requirements
  • Cybersecurity and strategic data sovereignty
  • Demand for low-latency digital services.

They generate investment, support digital businesses and provide the infrastructure necessary for India’s emerging AI economy. 

Rapid Expansion: 

• India’s installed data-centre capacity increased from around 375-520 MW in 2020 to nearly 1.5 GW in 2025. It is estimated to reach 4.5-6.5 GW by 2030. Committed investments during 2019-25 were estimated at approximately $95 billion.

However, the economic opportunity carries high environmental and infrastructural costs.

Major Sustainability Challenges: 

• Rising electricity demand: Data centres require uninterrupted electricity for servers, cooling and backup systems. The Ministry of Power estimates their electricity demand could reach 13.56 GW by 2031-32. If this demand is met through coal-based power or diesel generators, it could increase emissions and undermine India’s climate commitments.
• Transmission bottlenecks: Renewable capacity is being added faster than the grid’s ability to transmit it. India reportedly curtailed nearly 300 GWh of renewable electricity in the first quarter of 2026 because of transmission constraints, while meeting only around 80% of its transmission-expansion targets in recent years. 
• Large water footprint: Water is used directly in cooling and indirectly in electricity generation. One estimate cited by CEEW places India’s data-centre water use at around 150 billion litres in 2025, potentially more than doubling by 2030. Clustering facilities around water-stressed cities such as Mumbai, Hyderabad, Bengaluru and the National Capital Region could create competition with domestic and agricultural users.
• Local heat generation: Servers convert most of the electricity they consume into heat, which must be released into the surrounding environment. A 2026 remote-sensing preprint reported an average rise of about 2°C in land-surface temperature around selected AI hyperscale centres.
• Climate vulnerability: Data centres themselves face risks from heatwaves, urban floods, coastal storms and water shortages. Higher ambient temperatures increase cooling requirements, creating a feedback loop of greater power consumption and waste-heat generation.
• Wider environmental footprint: Data centres also generate electronic waste, require land and construction materials, use refrigerants and depend on batteries and diesel generators for backup power.

Governance Gap: 

• India does not yet have a binding national data-centre sustainability framework. Around 15 States have introduced dedicated or related policies, but CEEW found that only five explicitly contained sustainability provisions.
• Most State policies emphasise tax and stamp-duty exemptions, concessional land and electricity, transmission-charge waivers, uninterrupted power and fast-track clearances. Requirements relating to water disclosure, renewable energy sourcing, grid impact assessments and thermal effects remain uneven.
  • Gujarat’s 2026 policy requires eligible projects to source at least 51% electricity from renewable energy, while Maharashtra reduced its earlier green-power requirement from 100% to 51%.

General groundwater and environmental regulations continue to apply, but data centres require sector-specific standards reflecting their concentrated and continuous resource demand.

Way Forward: 

• National sustainability framework: Establish enforceable standards for energy, water, emissions, e-waste and thermal impacts.
• Mandatory disclosure: Require public reporting of electricity use, water sources, carbon emissions and backup fuel consumption.
• Efficiency benchmarks: Prescribe limits based on Power Usage Effectiveness (PUE) and Water Usage Effectiveness (WUE).
• Climate-sensitive siting: Assess water stress, grid capacity, heat, flooding, seismic risk and proximity to renewable energy sources before approval.
• Cleaner cooling: Promote treated wastewater, closed-loop systems, dry cooling, direct-to-chip liquid cooling and immersion cooling. 
• Round-the-clock clean power: Combine solar and wind with battery storage, pumped storage and demand response instead of relying merely on annual renewable energy certificates.
• Grid-cost accountability: Large users should bear an appropriate share of dedicated transmission and storage costs so that these are not transferred to ordinary electricity consumers.
• Flexible computing: Non-urgent computational workloads can be shifted to periods of high renewable generation or lower grid demand. 
• Circular economy: Encourage longer server life, refurbishment, recovery of critical minerals and scientific disposal of electronic waste.

Data centres are indispensable to India’s digital and AI ambitions. The choice is not between digitalisation and environmental protection, but between unplanned expansion and climate-resilient digital infrastructure.  

Practice Question: 

Q. Examine the locational advantages and constraints for developing a world-class data centre industry in India. How can renewable energy integration address the sustainability and energy security challenges faced by this sector? (15)