India’s Data Centre Boom Faces Mounting Water and Energy Challenges

India’s rapid ascent as a global digital hub is colliding with a pressing environmental reality: the country’s booming data centre industry is straining its already limited water and energy resources.

Driven by the explosive rise of artificial intelligence (AI), cloud computing, and mobile connectivity, India is witnessing an unprecedented surge in data centre investments. These facilities—massive server complexes that power everything from ChatGPT queries to electric vehicles and video streaming—are emerging as a cornerstone of the country’s digital economy.

Global Tech Giants Bet Big on India’s Data Infrastructure

In October, Google announced a $15 billion investment in a new AI data centre in Andhra Pradesh—its largest project in India to date. The move follows major investments by Amazon Web Services (AWS), Meta, and domestic conglomerates like Reliance Industries, all seeking to expand capacity in one of the fastest-growing data markets in the world.

According to global real estate consultancy JLL, India’s data centre capacity is expected to soar by 77% to 1.8GW by 2027, with up to $30 billion in new investment anticipated by the end of the decade.

India’s data demand underscores the urgency. Despite generating roughly 20% of global data, the country hosts only about 3% of the world’s data centre capacity. By 2028, India is projected to become the largest consumer of data globally—outpacing the U.S., Europe, and China.

This growth is being propelled by widespread mobile and internet penetration, the government’s data localization mandates, and the rapid adoption of AI tools. India is already the second-largest user base for AI chatbots like ChatGPT.

Cost Advantages and Talent Fuel the Expansion

For investors, India’s appeal lies not just in scale but in cost efficiency. A report by Kotak Research notes that India’s data centre development costs are among the lowest globally, second only to China. Electricity rates are significantly lower than in the U.S., U.K., or Japan, and the country’s abundant pool of IT professionals strengthens its competitiveness.

“Just as India capitalized on the IT services boom of the 1990s and 2000s, this is another opportunity to leverage our strengths,” said Vibhuti Garg, South Asia director at the Institute for Energy Economics and Financial Analysis (IEEFA).

A Growing Sustainability Dilemma

Yet, the sector’s expansion presents a serious environmental challenge. Like their counterparts worldwide, data centres in India consume vast amounts of electricity and water to maintain stable cooling systems.

In a country that already faces chronic resource shortages, this dependence on water-intensive infrastructure is alarming. The World Bank estimates that India holds 18% of the world’s population but only 4% of its water resources—making it one of the most water-stressed nations globally.

India’s data centre water usage is projected to more than double from 150 billion litres in 2025 to 358 billion litres by 2030. Much of this expansion is concentrated in urban hubs such as Mumbai, Chennai, Hyderabad, and Bengaluru—regions already competing for limited water supplies.

Advocacy groups warn that this could lead to local resistance and regulatory pushback. The Human Rights Forum, for instance, has criticized Andhra Pradesh’s approval of Google’s Visakhapatnam facility, arguing it could worsen the city’s existing water shortages.

In response, Google said it uses a “peer-reviewed context-based water-risk framework” to assess watershed risks at new sites before choosing water sources.

Experts Warn of a Policy Blind Spot

While India has robust policies on data protection, energy use, and zoning, water consumption remains a glaring omission. “Water use does not feature prominently in policy frameworks, creating a high-risk blind spot for long-term sustainability,” said Sahana Goswami of the World Resources Institute (WRI) India.

An S&P Global report predicts that 60–80% of India’s data centres could face high water stress within this decade, potentially leading to shutdowns that ripple across industries reliant on cloud services—from banking and healthcare to transportation.

“Imagine a peak summer day when cooling water runs out—data outages could disrupt hospitals, financial systems, and urban transit,” Goswami warned.

Innovating Toward Sustainable Solutions

Experts suggest that the industry must innovate to reduce its water footprint. One solution is using treated wastewater from households and industries instead of freshwater sources.

“India already has successful examples of this in Navi Mumbai, where data centres partner with municipal utilities for recycled water,” Goswami noted.

Praveen Ramamurthy, a water recycling specialist at the Indian Institute of Science in Bengaluru, said such practices should become mandatory. “Non-potable or treated water must be the standard for cooling systems. India should also prioritize low-stress water basins for new projects,” he said.

Ramamurthy added that adopting zero-water cooling technologies—already in use across parts of Europe and North America—could help India reduce risks, though these systems are not yet widely deployed locally.

Energy Demand Doubles as AI Grows

Beyond water, India’s data centres are also expected to double their share of national electricity consumption—from around 1% today to up to 2% within a few years, according to the International Energy Agency (IEA).

“This expansion could increase dependence on fossil fuels, as there is no regulation mandating the use of renewable energy,” said IEEFA’s Garg.

While some operators have signed agreements with renewable energy providers, formal policy mandates could make the sector’s growth more sustainable. “If we want a resilient digital economy, clean energy integration must be a baseline requirement,” Garg added.

Balancing Digital Growth with Environmental Reality

As India pushes ahead with its digital transformation, policymakers face the delicate task of balancing economic opportunity with environmental preservation.

“India can’t afford to slow down its data ambitions,” Garg said. “But we also need to ensure that one good is not sacrificed for another.”

The challenge for New Delhi is to shape a policy framework that allows India’s data centre boom to thrive—without draining the natural resources that sustain its people.