India's Union Budget announced February 1 includes a tax holiday extending to 2047 for foreign cloud providers that use Indian data centers to serve customers outside the country. Finance Minister Nirmala Sitharaman framed it as enabling "critical infrastructure" investment, but the structure reveals calculated positioning.
The mechanics matter here. Foreign providers pay zero tax on offshore revenues if they procure data center services through Indian resellers. A 15% safe harbor applies for related Indian data center entities. Services sold directly to Indian customers remain excluded - those must go through local channels regardless.
This targets the hyperscalers - AWS, Azure, and Google Cloud held 63% of global market share in Q3 2025. India wants their AI and cloud infrastructure investment, and a 20-year certainty window addresses the capital intensity these facilities require. Data centers need enormous electricity, water, and land commitments that don't pencil out on shorter timelines.
The timing isn't coincidental. Competition for AI infrastructure positioning across U.S., European, and Asian markets is accelerating. India's offering long-term tax certainty while positioning itself as a lower-cost compute hub for Indian firms and a potential offshore serving point for regional workloads.
The infrastructure risks are real. India's power grid faces reliability challenges, electricity costs run high, and water stress could constrain AI-scale operations in key markets. The reseller requirement may also squeeze domestic players' margins - Big Tech gets tax benefits while local intermediaries handle compliance.
Two other budget measures signal broader intent: a five-year tax break for companies importing manufacturing equipment, and tax exemption on offshore income for skilled workers who stay five years. That last one is notable given India's ongoing skilled worker emigration.
Whether hyperscalers bite depends on infrastructure reality versus policy promise. We'll see if the 20-year runway is enough to justify the capex risk.