India’s rapid push to become a global hub for artificial intelligence and cloud infrastructure is triggering fresh questions about the country’s capacity to support the water- and power-intensive demands of large-scale data centres. With billions of dollars committed to new facilities in 2025 alone, policymakers and urban planners are increasingly focused on whether critical natural resources can keep pace with this digital buildout.
Industry estimates suggest that net investments announced this year could add more than 6 gigawatts of data centre capacity, translating into capital commitments approaching $70 billion. Since October, several large foreign and domestic investors have pledged over $40 billion towards hyperscale facilities across major metros. While the surge strengthens India’s strategic position in AI and digital services, experts warn that water scarcity and energy reliability could become binding constraints. Water availability is emerging as the most pressing concern. India’s per-capita freshwater availability has already fallen well below the commonly accepted stress threshold, according to policy research organisations. Data centres, which operate thousands of high-performance servers around the clock, require intensive cooling to prevent overheating. A large facility can consume millions of litres of water daily comparable to the needs of a medium-sized urban neighbourhood raising fears of competition with municipal and agricultural demand. “Cooling systems remain the Achilles’ heel of data centre infrastructure,” said an urban infrastructure specialist. “Unless operators move decisively towards water-efficient technologies, cities hosting these facilities will feel the pressure.”
Electricity demand is the second challenge. Although India has improved generation capacity and now claims power surplus status, data centres require uninterrupted, high-quality power. Much of this still comes from carbon-intensive sources, creating tensions with climate commitments. Developers increasingly promise renewable energy sourcing, but experts note that grid stability, storage, and last-mile reliability remain unresolved issues. Newer cooling technologies, such as liquid immersion and direct-to-chip systems, offer a partial solution by reducing water dependence. However, these technologies involve higher upfront costs and are yet to be adopted at scale. For now, conventional water-based cooling remains dominant, prolonging concerns around wastage and non-recyclable discharge. Recognising the stakes, the government is drafting a comprehensive data centre policy that treats the sector as core national infrastructure. Proposed measures include dedicated data centre zones, mandatory disclosure of water usage efficiency, and incentives to source power from renewable grids, micro-grids, or emerging technologies such as small modular reactors. Locating data centres away from dense residential zones is also expected to reduce stress on urban utilities.
Urban policy analysts argue that data centres can coexist with sustainable city goals if governed carefully. Transparent resource accounting, integration with renewable energy, and reuse of treated wastewater could help align digital growth with inclusive and climate-resilient urban development. As India accelerates its digital ambitions, the success of its data centre strategy may depend not just on capital inflows, but on how intelligently cities manage water, power, and land resources that underpin both economic growth and everyday urban life.
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