Economic Survey flags power, water, GPU bottlenecks as India targets 4GW data centre capacity

India is aiming to increase its data centre capacity to approximately 4 gigawatts (GW) by the year 2030, fueled by the growing adoption of cloud technologies, artificial intelligence (AI), the Internet of Things (IoT), and 5G connectivity. However, the recently released Economic Survey for 2025–26 has issued a cautionary note regarding potential roadblocks, specifically highlighting issues related to energy supply, water resources, and hardware shortages that could hinder this expansion. As of June 2025, the country had an installed capacity of around 1,280 megawatts (MW), comprising about 130 data centres operated by private entities and an additional 49 managed by government agencies. The sector is predominantly led by private initiatives and remains largely deregulated, bolstered by government programs like Make in India and Atmanirbhar Bharat, which aim to enhance domestic electronics and semiconductor manufacturing. In a bid to improve public digital services, the Indian government has expanded its cloud platform, MeghRaj, incorporating 26 cloud service providers by December 2025. This initiative is designed to accelerate e-governance, digital payments, and data sharing based on consent. Nevertheless, the Economic Survey underscores the increasing physical strains resulting from AI-driven infrastructure growth. Data centres demand substantial amounts of electricity and water, and the unpredictable nature of AI workloads poses a risk to grid reliability. Currently, India accounts for roughly 3% of global data centres by number, starkly contrasting with high-income nations that hold 73%, despite India generating nearly 20% of the world's data. The Survey warns that emerging competitors like Malaysia, Japan, and Vietnam are intensifying the race for data centre dominance, making it imperative for India to address its structural challenges, particularly energy shortages, to assert itself as a global AI data centre hub. The Economic Survey cautions that while expanding AI infrastructure, India must navigate the limitations of power, finance, and especially water resources. The report emphasizes that constructing large-scale computing facilities entails significant trade-offs, as these resources are also vital for households and industrial activities. It suggests that investment in AI infrastructure competes with other essential demands, leading to a crucial decision-making process between centralized scaling and decentralized efficiency. One of the most pressing challenges is the availability of hardware. The soaring demand for GPUs, coupled with a shortage of high-bandwidth memory chips, is exerting upward pressure on costs. The Survey alerts that even well-funded initiatives could face delays as they await the necessary supplies. It concludes that a consistent supply of semiconductors is essential for sustaining economic activities across various sectors.