New Delhi: The World Bank has cited India’s 20-year tax holiday for foreign cloud and data centre companies as an example of incentives that can leave the public carrying the risk while companies keep the returns, warning that developing countries competing for artificial intelligence (AI) investment could end up in a “race to the bottom”.
The remark is in the World Development Report (WDR) 2026, titled ‘The Promise of Artificial Intelligence’, launched in India on Thursday with the Centre’s IndiaAI Mission.
The report says generative AI has already reduced job postings for entry-level white-collar roles in India. At the same time, the World Bank report notes that less than one in ten jobs in developing economies can be automated by AI, against more than one in three in rich countries. Neelkanth Mishra, World Bank Group Executive Director, said at the launch that “only about slightly above 4 per cent of jobs in India” are at risk.
According to the report, India has lost more top AI researchers than any other country it tracked. It adds that India is the only economy surveyed where a majority did not agree that AI needs regulation.
‘Race to the bottom’
Finance Minister Nirmala Sitharaman announced the tax holiday in the Union Budget 2026-27 on February 1. Under this provision, foreign companies using India-based data centres to sell cloud services to global clients are exempted from tax on that income until 2047. Sales to Indian users, the provision states, must go through an Indian reseller. Information Technology Minister Ashwini Vaishnaw has said the move could draw investments worth $200 billion.
The report, however, adopts a different tone. It says that such deals, if “entered into excessively… may place a disproportionate share of the financial and technological risks on the public while allowing firms to capture a significant share of the economic returns”. “Such policies risk creating a race to the bottom in which countries undercut one another in offering incentives to attract investments, further straining fiscal space,” it adds.
The report records Microsoft’s December 2025 announcement of a $17.5 billion investment in India, which the company called its largest in Asia.
It warns that “large investments in data centres may also impose other societal costs, such as higher electricity prices”.
‘Don’t burn a trillion dollars’
The report questions the push for ‘AI sovereignty’— a country building its own chips, data centres and models. “The pursuit of AI sovereignty risks becoming a development trap,” it says. “Simply having a local data centre cannot avoid dependencies on chips from major foreign providers.”
In the foreword, World Bank chief economist Indermit Gill tells developing countries to “tune out much of this noise”. “AI has thrown them a lifeline they should grasp before it slips away. Doing so does not oblige them to burn a trillion dollars on the ultimate large language model,” he writes.
India has set aside Rs 10,372 crore for the IndiaAI Mission, and onboarded over 38,000 graphics processing units (GPUs)—GPUS are technology used to train AI—for startups and researchers. The country’s data centre capacity is projected to rise from 2.2 GW in 2025 to 12 GW by 2030, according to consultancy Wood Mackenzie.
Entry-level jobs hit first
In India, the report says, “the introduction of generative AI reduced monthly job postings for white-collar occupations most amenable to AI use and least complementary to AI, with disproportionate impacts on entry-level workers”. Across South Asia, it says, generative AI “has already reduced monthly job listings by about 20 per cent for the most exposed white-collar occupations”.
Among examples, the report names outsourcing—call centres, customer support and back-office work—”which has helped countries like India and the Philippines create jobs and grow their economies”. With the advent of AI, “companies in wealthy countries may need fewer workers overseas to do this work”, it says.
The findings come as India’s tech industry slows hiring. Thousands of tech workers have also been hit by layoffs as companies go big on AI investments.
India loses its AI talent
Between 2011 and 2024, India recorded the largest net outflow of top AI researchers and inventors among the countries tracked, with an average net flow of minus 200, the report says. The US gained the most, at plus 197. China is not part of the data.
India still has the second-largest pool of such talent—50,460 in 2025, against 220,520 in the US. Recently, the report says, India has “seen a smaller outflow”.
Least worried, least keen on rules
Just 18.8 per cent of the Indians surveyed said they were “more concerned than excited” about AI, against 50.5 per cent of Americans.
“In all economies across all income groups (except India), a majority of people agreed that regulation of AI is needed,” the report notes.
India has no AI law. The AI Governance Guidelines issued by the IT Ministry in November 2025 rely on existing laws such as the IT Act and the data protection Act.