By Shri E A S Sarma, Former Secretary to the Government of India
To
Smt. Nirmala Sitharaman
Union Finance Minister
Dear Smt. Sitharaman,
I refer to your announcement in the 2026 Budget Speech providing “tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India” Considering the dominance of the US in AI/ data processing capabilities, the tax holiday so announced is evidently intended for US IT companies.
On the face of it, extending such a tax holiday exclusively for foreign data centres is discriminatory vis-a-vis data centres promoted by domestic agencies. It tends to discourage development of indigenous capabilities in AI/ data processing.
The Ministry of Electronics & Information Technology (MEITY) is yet to finalise the draft data centre policy of 2020, though the States have started taking a headlong plunge into allowing foreign IT companies to set up data centres without a policy direction. The draft policy seeks to promote indigenous capabilities in AI/ data storage and processing, whereas what the Centre and the States are doing at present is exactly the opposite.
In this connection, I invite your attention to a letter on the subject that I had addressed recently to the Union Minister for Environment (https://countercurrents.org/2026/06/ai-data-centres-and-environmental-justice-e-a-s-sarma-urges-scrutiny-of-projects-amid-ecological-and-human-rights-concerns/) and an article I have authored on the global rush for setting up AI/ data centres (https://countercurrents.org/2026/05/mad-rush-for-ai-data-centres-in-india-at-what-social-cost/), in which I have evaluated the social costs of AI/ data centres, and the likely human rights violations they involve.
Had someone in your Ministry been prudent enough to evaluate the fiscal implications of the tax holiday that has been granted vis-a-vis the finances of a US-based IT company like Google, he or she would have advised you not to rush into announcing such a sweeping tax incentive measure, as it could imply around Rs 95,000 Crores of cumulative revenue loss for a one GW data centre alone. Considering that the total data centre capacity in India is projected to reach 17 GW in a couple of years, out of which at least 75% i.e. 14 GW will be foreign-owned, the tax holiday you have announced will lead to more than Rs 13 lakh crores of revenue loss over the next two decades! The political leaders in the States are bending backwards to offer huge subventions on land, water, electricity, along with their own State tax concessions to promoters of data centres. If all those concessions are quantified and taken together, it will amount to the governments at the Centre and in the States collectively bearing in excess of 50% of the total investment on data centres, making a mockery of the idea of private investments driving those data centres.
Is the government aware that the US IT companies are facing stiff opposition in setting up data centres in their own country and, they are therefore quickly shifting operations to countries like India where data protection legislation is highly fragmented and inadequate, environmental regulation fragile and crony capitalism rampant?
Is the government aware that most US IT companies work with the Pentagon and that, under the US Cloud Act and other similar data-related laws, the US can force its IT companies located in India, to provide unhindered access to the data stored by them, including data that is strategic from the point of view of India?
Are you aware that a 1 GW data centre occupies around 600-800 acres of land? In other words, 17 GW AI/ data centre capacity in India will require 10,000-14,000 acres of land. If it is arable land, it will displace 34,000-45,000 marginal cultivators, mostly dalits, causing them irreparable loss of livelihood and trauma. Are you aware that the compensation that the States are paying the land losers can never make up for their livelihood loss?
In some States like AP, in addition to displacing marginal farmers, in a brash display of crony capitalism, the local governments have allotted statutorily notified forest lands for data centre projects, even lands within prohibited eco-sensitive zones, at prices several orders of magnitude less than their intrinsic value, violating environment and forest laws and infringing apex court’s directions for conserving forests.
One GW data centre consumes 11.4 TWH of electricity and 8.1 billion litres of water annually. In the US, for that reason, where local communities are up in arms against data centres, many States have imposed higher electricity and water tariffs on data centres. In contrast, Indian politicians, in their anxiety to please US IT companies, are supplying them both electricity and water at heavily subsidised tariffs. As if that is not enough, AP’s political leadership has allowed Google to set up data centres in water-scarce areas, knowing well that they will cause a serious water crisis for the local communities. Crony capitalism has no limits, when it comes to promoting private businesses at the cost of public interest.
A UN agency has comprehensively assessed the environmental impact of data centres (https://collections.unu.edu/eserv/UNU:10647/UNU-INWEH-Report-The_Env_Cost_of_AI-2026.pdf). The Environment Ministry is yet to put in place a framework for assessing the environment impact of each data centre project and incorporating the necessary safeguards.
Considering that both the Centre and the States are giving foreign companies like Google not only tax concessions but land, water, electricity at heavily subsidised rates and free access to data, does it not imply that the people of India, its tax payers and its marginal farmers are going to subsidise US IT companies that earn trillions of dollars of profits annually?
Do data centres offer employment opportunities for local youth, in return for the largesse showered on them by your Ministry and the States? Latest estimates indicate that one GW data centre may offer employment for not more than 1000 people (https://qz.com/data-center-jobs-employment-investment-economic-development-051326) Unfortunately, the States in their over-exuberance to please foreign data centre promoters are not securing any firm commitment from them on local employment opportunities. In the absence of such a guarantee on employment, why should the Centre and the States grant open-ended incentives to the promoters of data centres? Is your Ministry, by extending a 21-year tax holiday for “foreign” data centres, benefitting the people of India, or benefitting the business interests of the USA, a situation that had been so deftly caricatured by the one and only R K Laxman several decades ago (see the cartoon below)
Is this 21-year tax holiday for US-based IT companies a part of the larger process of India bartering away its sovereignty to that country step-by-step, starting with India’s precious satellite spectrum handed over to Elon Musk’s Starlink, the atomic energy laws amended at the behest of the US government to promote the business interests of US nuclear reactor suppliers, India caving in to US pressure and taking orders from it for importing cheaper oil from Iran/ Russia vis-a-vis costlier oil from USA/ Venezuela and moving away from Iran where India has made heavy investments on ports, roads and railways?
Should not the NDA government at the Centre and its partners take the Parliament and the public at large into confidence on the increasing dominance of US IT companies in India and its long-term strategic implications? What India is urgently in need of at this crucial hour is a comprehensive long-term data centre policy based on a robust framework of data sovereignty laws and regulations, taking cue from the tax sovereignty regulations being developed in Europe (https://www.reuters.com/business/retail-consumer/eu-cloud-rules-curb-amazon-google-access-strategic-tenders-draft-document-shows-2026-06-01/). India needs to develop indigenous AI/ data processing capabilities in the public sector on a war footing, instead of meekly yielding place to US IT companies.
Big businesses in India pay lesser average effective tax, compared to promoters of small businesses (see Annexure 7 of the latest Receipts Budget). What India needs is not tax incentives for big businesses but concessions for small businesses.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam