Data centre right bet, now, build capacity

The budget has presented a clear vision for India's emergence as a global data centre hub, using tax policy as a lever for competitiveness. The combination of a tax holiday and rationalisation of the international taxation and transfer pricing framework provides much-needed certainty in an uncertain global environment. Nomenclature changes, clubbing various IT services, should propel India's ambition of leveraging AI-led productivity gains to speed up economic growth. A predictable policy environment is a necessary first step in drawing in the massive investments needed to build AI infrastructure. The country will have to offer matching improvements in energy supply and semiconductor manufacturing capability to drive a successful AI revolution. This budget signals the intent, specifically offering investors a vision in decades, not years. Work on the other elements to establish the ecosystem is also becoming visible.

Investment in Indian data centres is gaining momentum, but a quantum jump is needed for India to become a low-cost, large-scale destination for cloud services. Removing friction over transfer pricing through simplified safe harbour conditions was a pending demand from the industry, which operates through global capability centres.

Bureaucratic classification of IT services was another sticking point that has been addressed. The speed at which AI is spreading requires prompt policy responses, which have been articulated in the budget. The ease of doing business for the IT industry has improved substantially with these measures, and will reinforce India's attractiveness as a global delivery and engineering base.