In a technology-first world, digital infrastructure drives economic growth, innovation, and seamless citizen services. For policymakers, the upcoming budget offers a decisive opportunity to strengthen India’s digital foundation and align it with global benchmarks. India has made commendable strides, addressing gaps in digital infrastructure, but continued focus on targeted investments and fiscal incentives will be critical to accelerating growth and ensuring long-term competitiveness in the global digital economy. This will also be key to supporting emerging technologies and expanding India’s digital ecosystem across all sectors.
Digital Transformation: Bridging the Gap
Digital transformation has become a foundational strategy for enhancing governance, industry competitiveness and citizen services. Expectations for budgetary allocations in this area are high, particularly in the e-Governance initiatives, Digital Skills development and Public Digital platforms. A pressing imperative is to invest in upgrading existing e-governance platforms and to launch new initiatives that improve service delivery and transparency.
Increased funding for e-Governance initiatives such as the Digital India program, Smart Cities Mission, and Rural Digital Literacy campaigns would underscore the government’s commitment to enhancing digital infrastructure. As the demand for AI talent in India is projected to rise from 6.5 lakh to over 12.5 lakh by 2027 there is a pressing need for upskilling to bridge the talent gap, with greater investment in workforce development fostering inclusivity. Additionally, scalable digital platforms have already proven their effectiveness in meeting public needs and extending tax benefits to similar platforms in sectors like health, agriculture and education could unlock new efficiencies and drive growth across these critical areas.
Cloud Computing: Empowering Scalability and Efficiency
The budget should emphasize accelerating cloud adoption through targeted fiscal measures and policy incentives. Tax breaks for cloud infrastructure investments and operational expenditures can drive scalability and adoption across industries. Support for hyperscale data centres, edge computing infrastructure and adherence to data localization requirements will strengthen India’s digital resilience. Additionally, funding for cloud-native skill development programs and incentivizing research in cloud technologies like multi-cloud, AI integration and serverless computing are critical to building a robust and future-ready cloud ecosystem.
Artificial Intelligence: Transforming Industries and Governance
India’s AI market is currently valued at USD 7-8 billion and is projected to grow 2.5 times, reaching USD 20-22 billion by 2027. To unlock its full potential and build an AI-ready ecosystem, India must focus on five key pillars: real estate, compute capacity, network infrastructure, power supply and talent. Focus on these pillars will create a favourable environment that will drive increased investments in AI across the country. The budget should provide impetus to these five pillars, prioritizing active investments and policies in these domains.
Enabling an ecosystem of land and allied infrastructure for data centres, can be achieved by implementing national-level single-window clearances and fast-tracking approvals for land parcels designated for data centre development. Additionally, providing an upfront capital subsidy for mechanical, engineering, and plumbing costs, along with offering interest subvention on borrowed capital for the first five years of operation, will further incentivize the growth and establishment of data centres.
Establishing Data Center Facilitation Units (DCFUs) and Data Center Economic Zones (DCEZs) can foster AI-specific industrial zones and R&D hubs, incentivizing enterprises and Cloud Service Providers (CSPs) to invest in Graphics Processing Units (GPUs). Reducing import duties on GPUs and high-performance computing hardware will further boost investment and AI infrastructure development.
Artificial intelligence is reshaping industries and redefining the possibilities of governance. However, scaling AI adoption requires a conducive ecosystem supported by adequate funding. From predictive policing to efficient public service delivery, AI has transformative potential for governance. Allocating funds for pilot projects that integrate AI into Government workflows can demonstrate its efficacy and scalability. Leveraging AI for sectors like healthcare, agriculture, and education could address critical challenges. For instance, AI-driven diagnostics could improve healthcare access in remote areas, while predictive analytics could optimize crop yields for farmers.
Data Centres: Building the Foundations of a Digital Economy
A strong AI infrastructure is crucial to meeting the growing demands of AI workloads. As AI continues to advance in India, it is essential to provide the required resources to support this transformative technology. Data Centres are integral to driving the AI revolution in India. Therefore, India needs to invest in high-performance computing, scalable power and cooling systems, efficient networking, localized edge computing, energy-efficient designs and enhanced supercomputing capabilities to enable successful AI deployments.
Besides, AI, quantum computing, automation, and other cutting-edge technologies are also revolutionizing data centre infrastructure. This includes increased modularity, higher energy densities, and advanced automation. AI, particularly generative AI, has significantly accelerated technological innovation, making powerful tool accessible to a wider audience. This surge is driving unprecedented growth in the data centre sector.
Given the critical role that data centres play in supporting digital services and aligning with the government’s “Digital India” vision, it may be beneficial for the government to consider tax incentives for the sector. One such measure could be offering a tax holiday for a defined period or implementing a concessional tax rate of 15%, similar to the incentives provided under Section 115BAB for manufacturing units set up after April 1, 2019, that begin production by March 31, 2024.
A case in point are the incentives previously provided to the software sector resulted in a significant boost to investments and the creation of large-scale employment opportunities. If similar tax breaks are extended to the data centre industry, it could stimulate further growth in foreign investments and job creation, providing a new trajectory for economic development in India.
The upcoming budget has the potential to act as a catalyst for the next wave of digital transformation. Strategic investments in digital infrastructure—spanning cloud computing, AI, and data centres—will not only enhance the country’s competitiveness but also deliver tangible benefits to citizens. By addressing key challenges and leveraging emerging opportunities, policymakers can lay the foundation for a resilient, inclusive, and technology-driven future.
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- NSN Murty, Partner & Leader, Government & Public Services, Technology and Transformation, Deloitte India
- Smita Dayal, Manager, Deloitte India