A silent battle is unfolding beneath India’s digital ambitions — one that pits farmers against servers, borewells against cooling towers, and food security against foreign capital.
As global hyperscalers race to build AI and cloud infrastructure across India, the country is positioning itself as the world’s next data centre powerhouse. But this high-voltage push for investment may be colliding with an uncomfortable truth: India is already one of the most water-stressed nations on earth. And data centres do not run on code alone. They run on water.
How Malaysia's Boom Shaped India’s Strategy
India’s pivot toward data centres comes at a moment of recalibration. Policymakers in New Delhi have grown wary of speculative capital, particularly the surge in derivatives trading among retail investors. With higher Securities Transaction Taxes imposed on futures and options from April 2026 to cool what officials see as zero-sum speculation, the government is steering capital toward “productive” infrastructure.
Data centres have emerged as the preferred vehicle.
They promise hard assets, foreign direct investment, technological prestige and alignment with digital sovereignty goals. Industry projections suggest India could attract up to $200 billion in cumulative investments over the coming couple of years, building AI-ready infrastructure across major cities.
The Inspiration was not abstract.
In Southeast Asia, Malaysia rapidly transformed itself into a regional data centre hub after Singapore temporarily restricted new facilities due to energy constraints. Between 2021 and 2023, Malaysia approved over RM-114.7 billion (roughly USD 24 billion) in data centre investments. The surge in foreign inflows coincided with a strong recovery in the ringgit, which appreciated sharply through 2024–25, reinforcing the perception that digital infrastructure can drive currency stability and economic confidence.
Indian policymakers took note, say political observers in New Delhi.
If Malaysia could leverage hyperscale infrastructure to draw capital and boost macroeconomic sentiment, why couldn’t India? Yet Malaysia’s own boom has triggered warnings. In Johor, rapid AI-driven expansion has strained local water systems, forcing regulators to tighten approvals amid concerns over long-term water security.
The lesson may not be as straightforward as it first appeared.
India’s $200 Billion Bet — and the Water Beneath It
India’s installed data centre capacity is projected to rise from roughly 950 MW in 2024 to nearly 1,800 MW by 2026. Government incentives — including 20 years tax holiday, accelerated depreciation, and infrastructure support — have accelerated project approvals in Mumbai, Chennai, Hyderabad, Bengaluru and Pune.
Recent reporting suggests India’s data centre water consumption could rise from roughly 150 billion litres annually in 2024–25 to more than 350 billion litres by 2030. A significant proportion of facilities are located in regions already classified as high water-stress zones.
This is where the narrative shifts.
India holds only about 4 percent of the world’s freshwater resources while supporting nearly 18 percent of its population. Agriculture consumes roughly 80 percent of available water, sustaining millions of livelihoods but already strained by erratic monsoons and falling groundwater tables. Various projections warn that India’s water demand could outstrip supply by a wide margin before the end of this decade.
Against that backdrop, the resource intensity of hyperscale computing becomes more than a technical detail.
The Real Cost of Cooling the Cloud
A 100 MW data centre can consume between 1 and 5 million litres of water per day, depending on cooling systems and local climate. That translates to as much as 1.8 billion litres annually for a single facility. Multiply that across hundreds of megawatts, and the numbers escalate rapidly.
And cooling is only part of the equation.
Electricity generation — particularly from thermal and coal-based plants that still dominate India’s grid — also requires substantial water. International energy studies show that power production can consume roughly 1.5 to 2 litres of water per kilowatt-hour generated. In effect, every unit of cloud storage carries a hidden water footprint embedded in the energy system.
Scaled to India’s projected 1,800 MW capacity, cumulative withdrawals begin to resemble the annual irrigation demand of vast tracts of farmland.
In water-stressed districts, that is not theoretical. It is existential.
Bytes Versus Borewells
Many of India’s major data centre hubs overlap with regions dependent on groundwater irrigation. Farmers in parts of Maharashtra, Telangana and Karnataka already report declining water tables and rising costs for deeper borewells. Municipal supplies in urban centres remain uneven, particularly during summer months.
Into this landscape arrives an industry that requires steady, uninterrupted cooling — millions of litres per day, every day.
Industry representatives argue that advanced cooling technologies, recycled greywater, and efficiency improvements will moderate demand. Coastal states are exploring seawater-based cooling to reduce freshwater dependence.
But seawater solutions are geographically limited. Inland facilities will continue to rely on municipal and groundwater sources. Even coastal systems require massive intake and discharge infrastructure, raising concerns about marine ecosystems and thermal pollution.
Water stress, in other words, is not eliminated. It is redistributed.
Jobs and the Development Question
Proponents emphasize employment and economic spillovers. Yet data centres are capital-intensive, not labor-intensive. Construction generates temporary jobs, but long-term operations employ relatively small, highly specialized teams. The broader economic multiplier depends on adjacent digital ecosystems — software, services, innovation clusters — not the server farms themselves.
For rural communities facing groundwater depletion, the promise of high-skilled digital employment offers little immediate reassurance.
Warning Signs Abroad
The United States offers a preview of potential tensions.
In Virginia — the world’s largest data centre cluster — residents have protested new approvals, citing groundwater drawdown, noise, and rising electricity tariffs. Local governments in parts of Arizona and Georgia have tightened zoning rules amid community pushback. In drought-prone Arizona, investigative reports revealed that large facilities were consuming millions of gallons annually while residents faced water restrictions.
Community resistance has slowed or halted multiple projects.
Financial analysts, meanwhile, caution that the pace of AI-driven infrastructure expansion may outstrip sustainable revenue growth. If profitability narrows as technology becomes more efficient or decentralized, today’s massive facilities could face economic pressure tomorrow.
Infrastructure built for one technological moment can age quickly.
The Question India Must Confront
India’s data centre surge is framed as a symbol of technological ascendancy — a magnet for foreign capital in an era of shifting global supply chains.
But beneath the server racks lies a deeper calculation. Water is not an abstract input. It is a finite resource already under stress, already contested, already central to food security and rural stability.
The country now stands at a crossroads. It can pursue digital infrastructure aggressively while rigorously pricing and regulating water use — or it can allow short-term capital inflows to outpace ecological planning.
The next boom may not be measured in megawatts. It may be measured in aquifers-—over exploited. |
