New Delhi: A parliamentary committee has questioned the tax holiday granted to foreign cloud companies and warned that the power and water demands of data centers could complicate India’s drive to build sovereign artificial intelligence infrastructure, calling for consultations with environmentalists before the plan is scaled up.
The concerns are set out in the Thirty-First Report of the Standing Committee on Communications and Information Technology, headed by BJP MP Nishikant Dubey, presented to Lok Sabha and laid in Rajya Sabha on 6 August.
Reviewing the IndiaAI Mission, the panel flagged four pressure points at once. While the Mission is “aggressively working to establish a GPU cluster,” it said, “the high cost of hardware, global supply chain delays, huge power and water consumption by data centers and a tax holiday are significant issues.” It asked the Ministry of Electronics and Information Technology to “have consultations with all stakeholders, academicians, environmentalists and budget experts to mitigate any possible adversities”.
The tax holiday in question was announced in the Union Budget 2026-27, which exempts foreign companies from Indian tax on income from cloud services sold globally through data center services located in India.
The exemption runs until 2047.
By mentioning it alongside environmental strain, the committee has, in effect, questioned whether a marquee investment incentive sits comfortably with the resource costs of the data centers it is meant to attract—and has put environmentalists on the list of experts the government must consult.
The scrutiny lands as the Mission’s spending lags. The committee noted that MeitY had spent just 32 percent of the funds allocated at the revised estimate stage in 2025-26 as of 31 December, 2025, and that the Budget sanctioned only half of what the ministry had sought for 2026-27.
The targets, meanwhile, are steep: compute capacity of 10,000 or more GPUs, a further 3,000 GPUs of sovereign AI compute, and homegrown foundational models with 100 billion-plus parameters in Indian languages.
In its reply, the ministry pushed back on the suggestion that consultation was an afterthought, calling it “a continuation of the multiple, broad-based stakeholder consultations held over the last two years”. It said it had convened a meeting on 21 April, 2026, with major suppliers of GPUs and servers, cloud service providers and startups to plan the next steps “for building India’s Sovereign AI Stack,” and had begun a series of workshops to set up state-level Centres of Excellence, the first held on 20 May.
The committee was not fully satisfied.
It said it wanted to be told the outcomes of the April consultation and the progress made “in mitigating supply chain risks and for co-creating a robust and scalable infrastructure plan,” adding that only a coordinated effort would help meet the Mission’s targets.
The panel also placed the AI push against a wider research shortfall, noting that India’s gross expenditure on R&D stands at 0.64 per cent of GDP—below the global average, per the Economic Survey—with funding concentrated in the IITs and national laboratories.
(Edited by Amrtansh Arora)