Union Budget 2026: A Green Signal for India’s Data Centres? Key Policies Explained

India’s digital economy is expanding at an unprecedented pace, and at the heart of this transformation lies a fast-growing data centre industry. From cloud computing and fintech platforms to artificial intelligence, e-governance, and Global Capability Centres (GCCs), data centres power almost every digital service used today. As the Union Budget 2026 approaches, the big question facing policymakers and industry leaders alike is whether the government will send a clear “green signal” to data centres by promoting sustainability alongside growth.

Rapid Growth of India’s Data Centre Industry

India has emerged as one of the world’s most attractive destinations for data centre investments. Factors such as rising internet penetration, strong data localisation norms, expansion of 5G services, and growing adoption of cloud and AI technologies have significantly boosted demand. Industry estimates suggest that India’s data centre capacity could increase several times over the next decade, making it a key pillar of the country’s digital infrastructure.

Major cities like Mumbai, Chennai, Hyderabad, Bengaluru, and Noida have become preferred hubs due to robust connectivity, availability of submarine cable landing stations, and proximity to enterprise clients. Both global hyperscalers and domestic developers are committing large capital to build new facilities across these regions.

However, this rapid expansion has also brought sustainability challenges to the forefront.

Why Sustainability Matters for Data Centres

Data centres are highly energy-intensive facilities. They require uninterrupted power supply and advanced cooling systems to maintain optimal server performance. A large portion of their operating cost comes from electricity consumption, while cooling systems often rely heavily on water.

As India works towards its long-term climate goals and renewable energy targets, unchecked growth of conventional data centres could place pressure on power grids, increase carbon emissions, and strain water resources. This makes sustainability a critical issue for the sector.

Union Budget 2026 presents a unique opportunity for the government to address these concerns while continuing to support digital growth.

Expectations from Union Budget 2026

Industry experts believe that Budget 2026 could play a transformative role by introducing targeted measures that encourage green data centre development. Some of the key expectations include:

1. 1. Incentives for Renewable Energy Adoption

One of the most anticipated announcements is financial support for data centres that use renewable energy. Tax incentives, accelerated depreciation benefits, or subsidies for solar and wind power procurement could make green energy more affordable. Encouraging long-term power purchase agreements with renewable energy producers would help data centre operators reduce both costs and carbon emissions.

1. 2. Support for Energy-Efficient Cooling Technologies

Cooling accounts for a significant share of a data centre’s energy usage. Budgetary support for advanced cooling solutions such as liquid cooling, free-air cooling, and AI-driven energy management systems could improve efficiency. Import duty reductions on energy-efficient equipment may further lower upfront costs and promote adoption of green technologies.

1. 3. Recognition as Critical Infrastructure

Granting data centres critical infrastructure status is another long-standing demand of the industry. Such recognition could enable easier access to long-term financing, faster approvals, and policy stability. It would also signal the government’s commitment to treating data centres as essential national assets.

1. 4. Green Financing and ESG Alignment

Union Budget 2026 may also focus on promoting green financing instruments such as green bonds and sustainability-linked loans. Aligning data centre projects with Environmental, Social, and Governance (ESG) norms could attract global investors who prioritise climate-friendly infrastructure.

1. 5. Water Management and Resource Efficiency

Water usage is an increasing concern, especially in urban areas. Incentives for recycled water usage, water-efficient cooling systems, and zero-liquid-discharge facilities could help address this challenge. Clear guidelines on sustainable water management would further strengthen the sector’s environmental responsibility.

Policy Clarity and Ease of Doing Business

Beyond financial incentives, the industry is seeking clear and consistent policy frameworks. Single-window approvals, uniform regulations across states, and standardised sustainability benchmarks could significantly reduce project delays. Some experts have also suggested the development of dedicated data centre parks with pre-approved green infrastructure, reliable power, and water recycling facilities.

Aligning Digital Growth with Climate Goals

A green push for data centres aligns well with India’s broader national priorities. Initiatives like Digital India, IndiaAI Mission, and Make in India rely heavily on robust digital infrastructure. At the same time, India has committed to expanding renewable energy capacity and reducing carbon intensity.

By promoting sustainable data centres, Union Budget 2026 could help India strengthen its position as a global digital hub while staying aligned with climate commitments.

Industry Outlook: Optimism with Caution

While expectations are high, industry leaders remain cautiously optimistic. Previous budgets have offered incremental support, but many believe the sector now requires focused, long-term measures. Rising power tariffs, land costs, and regulatory complexities continue to challenge project viability, particularly for greenfield developments.

A strong green signal in Budget 2026 could boost investor confidence, accelerate capacity expansion, and encourage innovation in energy efficiency.

Conclusion

The growth of data centres in India is inevitable. The real challenge lies in ensuring that this growth is sustainable, efficient, and environmentally responsible. Union Budget 2026 has the potential to become a turning point by promoting renewable energy usage, efficient infrastructure, green financing, and policy clarity.

If the government delivers on these expectations, Budget 2026 could mark the beginning of a new phase where India’s digital expansion goes hand in hand with sustainability—sending a clear and lasting green signal to the data centre industry.