Global Tech Powerhouses Race to Build AI Data Hubs in India

This is the most extensive artificial intelligence (AI) center that Google is establishing beyond the United States. We aim to transform Vis...

This is the most extensive artificial intelligence (AI) center that Google is establishing beyond the United States. We aim to transform Visakhapatnam into a worldwide connectivity center.

On the 14th of last month in Visakhapatnam, a coastal city located in the southern Indian state of Andhra Pradesh, Thomas Kurian, the CEO of Google Cloud, addressed a press conference where Google revealed its investment in data centers within India. As he spoke, the audience responded with enthusiastic applause. On that occasion, Google unveiled plans to allocate $15 billion (around 21.9 trillion South Korean won) over the next five years for the development of extensive data centers across India.

India is becoming the epicenter of the global data center sector. Alongside Google, Amazon intends to allocate $12.7 billion towards India's cloud infrastructure by 2030, while OpenAI, the creator of ChatGPT, is aiming to establish a data center with a capacity of 1 gigawatt. Major international AI companies are quickly entering India's data center market. As per a global real estate consulting firm, CBRE, total investments by international firms in India's data centers are projected to rise from $60.3 billion between 2019 and 2024 to $100 billion by 2027—a 66% growth within three years. WEEKLY BIZ examined the reasons behind global AI companies' interest in India's data center market.

◇Top of the Line 'AI Testing Ground'

The main motivation for AI leaders to set up data centers in India is that the country is seen as the leading global hub for AI testing. India is the world's most populous country, home to around 1.45 billion individuals. Its constitution acknowledges 22 official languages, such as Hindi, Bengali, and Tamil, along with more than 120 major regional languages. As AI needs large volumes of data for training, India—offering a wealth of linguistic information from hundreds of millions of speakers of various languages—is a perfect setting.

In addition, India's tech-savvy population, consisting of more than 900 million internet users, offers a significant benefit in building a user base. The World Economic Forum (WEF) mentioned, "Testing services across various settings enables quicker adaptation when introduced to other regions or language groups and helps minimize biases that occur in restricted environments." It further noted, "India's variety of languages, demographic mix, and democratic principles create an ideal environment for testing AI services."

Indeed, AI companies are presenting extraordinary offers, including free AI chatbot services for Indian users, in an effort to tap into the market's potential. Google has recently collaborated with Reliance Jio, India's leading telecommunications company, to introduce a combined product that provides Gemini AI at no cost. In July, Perplexity agreed to offer Perplexity Pro free of charge for a year to 360 million customers of the local telecom provider Bharti Airtel. On the 4th, OpenAI also revealed plans to provide ChatGPT Go free of charge for a year, indicating that international AI companies are focusing on gaining market control rather than immediate financial gains.

◇Strong Government Backing

The Indian government's proactive engagement with international AI companies to enhance digital infrastructure is fueling the data center growth. India has recently intensified state-driven efforts to boost its AI sector. The "India AI Mission" serves as a key example. Introduced in March of last year with the vision "Build AI in India, Use AI for India," the initiative will allocate $1.2 billion in government funding over the next five years. Major areas of focus involve expanding AI infrastructure such as graphics processing units (GPUs) and offering financial assistance to AI startups and research organizations. The Indian Press Information Bureau (PIB) stated in a recent press release, "India has already acquired 38,000 GPUs, significantly surpassing the initial target of 10,000 set by the India AI Mission." It further mentioned, "India provides subsidies of 65 rupees per hour of GPU usage, ensuring access to top-tier AI resources."

The investment climate is appealing. India offers low land rental and labor expenses, with the government providing tax reductions and financial support. S&P Global stated, “India offers advantages such as subsidies for land and building use along with exemptions from electricity taxes, which are crucial since energy costs make up roughly 65% of data center operational expenses.” It mentioned, “Certain areas categorize data centers as industrial rather than commercial, leading to a reduction in retail electricity rates by approximately 40%.” The government is providing incentives in key sectors, ranging from land acquisition to electricity costs, to aid data center operations.

◇Water Shortage as a Contributing Factor

Nevertheless, worries are increasing that India's critical water shortages might pose a danger, as data centers require significant amounts of electricity and water. These facilities are referred to as "power-hungry monsters" because servers and IT equipment operate continuously. Moreover, cooling these systems demands billions of liters of water each year, resulting in a harmful cycle. The issue is that India is already among the most water-scarce nations globally. According to the BBC, "India represents 18% of the global population but has access to only 4% of the world's water resources." It cautioned, "India's water consumption for data centers is expected to increase from 150 billion liters this year to more than 358 billion liters by 2030, potentially worsening water scarcity." In the end, for India to advance as an "AI infrastructure hub," it needs to tackle core challenges related to power and water management.