CIOInsider India Magazine

The 21-year tax exemption for data centers in the Union Budget, combined with the India-US deal to enhance collaboration in cutting-edge technologies like GPUs, indicates something specific. India is aiming to take on a bigger role in providing global AI infrastructure instead of just using it. But most importantly, this issue is also about energy.

“India stands at a pivotal moment in its technological evolution. The intersection of artificial intelligence and energy infrastructure presents one of the most significant growth opportunities our economy has seen, and we believe India is exceptionally well-positioned to lead this transition,” says Shreevar Narayan, Chief Technology Officer, Ecofy.

AI Needs More Than Algorithms
India's goals for AI advancement are rapidly expanding, yet the energy infrastructure designed to support these goals is lagging behind. It's remarkable how fast the discussion around AI has shifted from tech-focused talks to debates centered on power infrastructure, energy grids, and the stability of fuel sources.

But at its core, there's an undeniable reality: AI relies on electrical power. Its functionality hinges on consistent energy availability, efficient cooling mechanisms, and the stability of power networks, and the strategies that nations employ for these crucial elements will shape the viability and edge of their AI systems.

As Shreevar puts it, “the challenge is not just about the compute power, it is also about the power behind the compute”.

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Global Warning Signs
The global landscape is already evolving due to these changes. Many developed countries are experiencing a surge in data centers that is transforming how power systems are designed, as the sector's electricity needs increase significantly. This situation is leading to noticeable effects: consumers are facing higher energy bills, some data center locations are increasingly depending on fossil fuels, and there is intensifying competition with other electrification goals like residential needs and transportation infrastructure.

In Ireland, data centers consume about 20 percent of the country's electricity, prompting regulators to enforce stricter rules for grid connections and demand that new sites include their own power sources or storage solutions. In various regions of the US, the rising demand for data centers is leading to the development of gigawatts of additional capacity. Some operators are choosing to implement combined projects that integrate data centers with specific gas plants to ensure consistent power supply. Singapore halted approval for new data centers for a period following rapid growth in the sector, and the Netherlands has limited large-scale projects due to worries about grid capacity and the distribution of renewable energy.

India’s Data Centre Boom
As 2025 concluded, the nation accumulated a substantial amount of funds for pursuing new ventures. Google allocated $15 billion to enhance AI data center initiatives through partnerships with the Adani Group and Bharti Airtel. Microsoft promised an investment of $17.5 billion, while Amazon declared an infusion of $35 billion. Additionally, Meta and Tata are in the process of constructing their own extensive data centers. Infrastructure housing data like cloud storage, emails, social media, streaming services, or websites are known as data centers.

The Water and Coal Challenge
On the other hand, AI data centers are architected for artificial intelligence processes, like training extensive language models and executing AI activities instantaneously. Given their focus, AI data centers necessitate advanced hardware and robust computing resources, leading them to use far greater amounts of electricity and water compared to conventional data centers. Even if each site utilizes water wisely, the swift expansion of data center capabilities could significantly increase overall water usage.

As stated by the Ministry of Housing and Urban Affairs, every urban resident in India receives 135 liters of water daily. A modest data center with a capacity of 1 MW, employing conventional cooling methods, is estimated to consume around 26 million liters of water every year, matching the annual domestic water usage of roughly 528 individuals. India's data center landscape presently includes 1.4 GW in operation, an additional 1.4 GW currently being built, and a further 5 GW planned for future development.

Coal still accounts for almost 75 percent of electricity production, despite the nation reaching a 50 percent mark in non-fossil fuel power capacity. The growing digital economy is tremendously straining the grid, requiring both increased capacity and adaptability. The future of artificial intelligence is increasingly being linked to the environmental impact of data centers, sparking widespread debate.

Nuclear Power Re-Enters the Conversation & Why it Matters
Faced with the huge energy needs arising from its AI and digital structure growth, India is making a significant push to reinvigorate its nuclear power industry.

India’s 100 GW Target
At the core of this initiative is the government's ambition to escalate nuclear power capacity to 100 GW by 2047, which is a massive leap from the current 8.8 GW. This plan, detailed under the 'Nuclear Energy Mission for Viksit Bharat' in the Union Budget for 2025-26, represents a strong political and financial pledge to position nuclear power as a key component of India's sustainable energy strategy.

Reliability Advantage
Currently, nuclear power constitutes 1.81 percent of India's energy capacity. The nation aims to elevate this capacity to 22.48 gigawatts in the short term, targeting the period from 2031 to 2032. In the long run, there is an ambitious goal of reaching 100 gigawatts, which represents more than just an energy objective; it is a vital aspect of the 'Viksit Bharat 2047' initiative. This initiative aspires to evolve India into a thriving economy surpassing $ 30 trillion. To support such significant economic growth, a dependable, extensive, and low-carbon energy source is essential, and nuclear power is distinctively suited to meet these requirements.

Nuclear power is noted for its remarkable dependability. The capacity factors of nuclear power plants are over 92 percent, surpassing those of coal at 54 percent, natural gas at 55 percent, wind at 37 percent, and solar energy at 27 percent when it comes to stable electricity production. Built to operate nonstop, nuclear reactors need little upkeep and can function for 18 to 24 months before needing refueling, guaranteeing a constant energy supply suitable for vital 24/7 operations such as those needed in data centers.

The SMR Bet
Leading India's nuclear resurgence is the strategic focus on Small Modular Reactors (SMRs). These reactors offer advantages that set them apart from the traditional large-scale plants. Their modular setup allows main parts to be produced in factories and then transported to the site for assembly—this approach shortens construction time on-site, improves quality control, and lowers costs by employing standardization and benefiting from learning efficiencies.

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The Indian government has prioritized SMRs as a central element of its Nuclear Energy Mission. The budget for 2025-26 allotted Rs.20,000 crore (around USD 2.4 billion) for research and development of SMRs, with a clear plan to launch at least five domestically designed SMRs by 2033. India is exploring a dual approach in developing Small Modular Reactors (SMRs):

Bharat Small Reactor (BSR): This initiative aims at an immediate commercial application. The BSR is a 220 MW unit leveraging India's established Pressurized Heavy Water Reactor (PHWR) technology. With extensive operational history and a well-established local supply chain, this model reduces the usual technological and implementation risks associated with pioneering SMR projects. The BSR presents a highly reliable opportunity for private sector investment.

Bharat Small Modular Reactor (BSMR): The initial design for the BSMR, with a capacity of 200 MWe, has been finalized, addressing both the nuclear reactor and the primary heat transport mechanism. Detailed design work is progressing for both nuclear and non-nuclear components. The construction and initiation of the demonstration unit are anticipated within six years following financial approval, with full start-up expected by the seventh year. The estimated expense for the initial unit is Rs. 5,700 crore.

India’s opportunity may be immense, but execution will determine outcomes. “I believe the real challenge isn't adoption — it's readiness. AI infrastructure demands reliable, scalable energy, and bridging that gap will determine how meaningfully India can compete globally”, says Vikram Raichura, Founder & CEO of helo.ai by Vivaconnect.

How India Can Win the AI-Energy Race

Build a Dedicated AI-for-Energy Strategy
India should craft a dedicated AI strategy tailored to the energy field, outlining clear directives and an action plan for AI adoption throughout various phases of energy generation, storage, distribution, and use. This plan should introduce standardized guidelines for AI implementation, data exchange, and seamless interaction among energy stakeholders like utility companies, governmental entities, and technology corporations. By formalizing this structure, India can maintain uniform policy directives and nurture an AI ecosystem driven by innovation.

Use AI to Modernize Grid Operations
India faces issues like inefficiencies and power outages due to high demand on its grid. By employing AI for foresight in grid management, machine learning can predict electricity needs and availability, allowing real-time dynamic load handling by operators.

AI-based tools for smart load distribution can predict changes in renewable sources like solar and wind, thereby fine-tuning energy distribution to minimize power interruptions.

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Scale AI-Powered Rural Microgrids
Invest resources in microgrids powered by AI to bring electricity to rural regions: Artificial intelligence has the potential to revolutionize how rural areas are electrified by implementing microgrids equipped with AI for managing energy in real-time, predicting necessary maintenance, and detecting faults without human intervention. These intelligent systems can connect renewable sources available locally, like solar power or biomass, and store surplus energy in batteries for future consumption. Integrating AI into microgrids facilitates a decentralized and eco-friendly approach to managing electricity in isolated areas, making extensive traditional grid systems unnecessary.

Incentivise Private Innovation
Private companies and startups should be encouraged by the Indian government to create energy solutions enhanced by AI, like smart thermostats and predictive maintenance tools. This encouragement can include offering tax incentives, supporting research and development, and building innovation hubs with universities and large tech firms. By fostering partnerships between private and public sectors, the adoption of AI-based solutions can be boosted in areas such as managing energy demand, improving efficiency, and advancing green building technologies.

Create AI Energy Research Centres
Establish a Center for AI Research Dedicated to Energy Change: India ought to allocate resources to set up R&D centers with an emphasis on AI at its top energy organizations, like the National Institute of Solar Energy (NISE) and the Indian Institute of Technology (IITs). These centers would prioritize crafting AI-based strategies specifically designed for India's shift toward new energy sources, including energy-saving technologies, enhancements in solar energy, intelligent grid networks, and methods to cut emissions.

Strengthen Cybersecurity & Regulation
Encouraging advances in AI for energy, India has the potential to spearhead the development of energy systems with minimal carbon output. Integrate AI for Regulatory and Grid Security: As energy operations grow more intricate with AI management, ensuring strong cybersecurity is crucial.

India should establish AI-based regulatory systems that allow nonstop observation of AI systems for their efficiency, potential security gaps, and adherence to energy laws. Additionally, AI should play a role in defending energy systems against cyber threats by identifying dangers instantly and reacting independently to protect vital components.

Artificial intelligence could transform how India manages energy resources. If backed by smarter grids, cleaner power, and resilient infrastructure, AI can help India accelerate growth while advancing sustainability goals. This strategy will play a significant role in reaching Sustainable. Development Goals like SDG 7, which focuses on providing affordable and clean energy, SDG 9, which promotes industry, innovation, and infrastructure, and SDG 13, targeting climate action, by improving energy accessibility, boosting discoveries, and reducing the impacts of climate change.