Why Gujarat is betting ₹ 6 crore on data centers?

Story so far: When the Gujarat government unveiled its first-ever data center policy (2026-2029), it did more than announce a new industrial policy, but signaled its ambition to tap into one of the fastest-growing segments of the global digital economy by becoming the first state in India to introduce such a policy.

The state hopes to attract ₹ 6 lakh crore investment and build 7.5 GW of data center capacity over the next few years, putting it alongside established hubs like Maharashtra, Tamil Nadu and Telangana. It also shows a broader trend developing across the country: that states are no longer just competing for factories, IT companies, ports or car plants. They are now competing to host the digital infrastructure that powers everything from artificial intelligence (AI) to online banking.

Launched by Chief Minister Bhupendra Patel, the policy offers a wide range of fiscal and non-fiscal incentives, including capital subsidies, interest subsidies, power tariff support, State GST (SGST) reimbursement, stamp duty and registration fee exemptions and financial assistance for captive desalination plants to meet the sector’s high water requirements.

The government said the policy was designed to capitalize on the rapid growth of AI, cloud computing, digital payments, e-commerce, electronics manufacturing and other data-intensive sectors while strengthening Gujarat’s position in India’s digital economy.

What exactly is a data center?

Simply put, the data center is the physical home of the Internet. It is a highly secure building filled with thousands of servers, network devices and storage systems that process, store and transmit digital information. Every online activity like sending a WhatsApp message, making a UPI payment, streaming a movie on Netflix, saving photos to Google Drive, shopping on Amazon or interacting with AI depends on data passing through these devices.

Unlike office server rooms, modern data centers are massive, industrial-scale facilities designed to operate 24 hours a day with virtually no interruptions. They require uninterrupted electricity, high-speed optical connectivity, sophisticated cooling systems and multiple layers of backup infrastructure to ensure services remain available every second of the day.

Why do they need politics?

State Chief Secretary MK Das claimed that Gujarat has become the first state to implement this policy. However, at least 15-16 states such as Telangana, Andhra Pradesh and West Bengal now have their own dedicated data center policies (or IT/ITES policies that specifically apply to data centers).

The specialized policy gives investors certainty on issues such as guaranteeing uninterrupted electricity for decades, ensuring reliable water supply, securing multiple high-speed fiber optic routes, offering quick regulatory approvals and making land available for future expansion, while specifying financial incentives that will reduce the cost of setting up large facilities and attract more investors. They are not like other heavy industries that are only looking for land and tax breaks.

Why is Gujarat interested?

Science and Technology Minister P. Bharati said that while India generates nearly 20% of the world’s data, it accounts for only about 3% of global data center capacity, while the United States and China together hold about 70% of global capacity.

For Gujarat, the policy fits into a broader strategy of expansion beyond its traditional strengths in manufacturing, ports and petrochemicals.

The state already has one of India’s strongest renewable energy sectors, particularly solar and wind, alongside industrial hubs such as Dholera and GIFT City. With electricity accounting for a significant portion of data center operating costs, access to renewable energy has become an important draw for global technology companies seeking to reduce their carbon footprint. The state also offers vast industrial estates, a relatively reliable transport network, large ports and a well-developed logistics ecosystem and wants to create more jobs. It also wants to create an ecosystem that attracts cloud computing companies, AI firms and technology investments in the long term.

What incentives are offered?

The Viksit Gujarat – Data Center Policy 2026-29 offers a mix of fiscal and non-fiscal incentives: capital and interest subsidies, power tariff subsidy, SGST rebate, electricity tax rebate, desalination plant subsidy and stamp duty exemption. Separately, the state has previously offered a full refund of electricity tax actually paid for a period of 20 years from

date of commencement of commercial operations in accordance with applicable laws, rules and regulations. It also offers uninterrupted power supply, incentives to integrate renewable energy sources and single-window project clearance.

The operation, management, maintenance and support of data centers operated in Gujarat shall be considered as “essential service” under the Gujarat Maintenance of Essential Services Act, 1972.

What incentives specifically are data centers looking for?

Land at subsidized or token rates, cheap and assured electricity and water supply, tax concessions, single window approvals and more importantly political stability as a data center is a 20-30 year infrastructure investment often costing hundreds or thousands of crores of rupees. Companies need assurance that the rules governing their investments will not change unpredictably.

Which states does Gujarat compete with?

Almost every major state now has data center policies: Maharashtra, Uttar Pradesh, Odisha, Telangana, West Bengal, Haryana, Madhya Pradesh, Punjab, Rajasthan, Himachal Pradesh and Chhattisgarh, but the fiercest competition is with Andhra Pradesh, which has emerged as a hyperscale hub after landing Google’s 15 billion watts. Visakhapatnam plus a separate Reliance AI data center project in Vizianagaram.

Why the high need for water?

The reason is cooling. Thousands of GPU clusters generate huge amounts of heat and would quickly fail without cooling. Water is commonly used in cooling towers and chilled water systems to dissipate this heat and keep equipment running safely.

Can Gujarat, a relatively water-scarce state, support such projects?

The country is facing recurring water shortages in several regions, so sustainable water management is essential if large clusters of data centers are to be built. The policy specifically states that they would provide uninterrupted water supply 24 hours a day at the doorstep of the data center entity. They also offer support for captive desalination plants: 20% capital support or ₹2 million/MLD, which supports sustainable water solutions. Gujarat has a natural advantage here: its long coastline gives it access to seawater cooling. Several industrial sites in the state already use treated wastewater for industrial operations, offering a possible model for future data center development.

Are data centers energy intensive?

Extremely, and increasingly so, with AI. According to reports, a simple AI challenge consumes as much energy as running a microwave oven for one second. This is precisely why Gujarat’s policy mandates that 51% of electricity consumed by data centers must come from green energy.

Do data centers create jobs at scale?

Not in the same way as the manufacturing industry. Once operational, a large hyperscale data center with an investment of several thousand crore rupees may directly employ only a few hundred highly skilled personnel responsible for operations, engineering and maintenance. No manual work after construction work is completed.

However, the wider economic impact goes beyond direct employment. Construction, electrical engineering, mechanical systems, cooling infrastructure, security services, equipment maintenance, cloud services, software companies and renewable energy projects all benefit from the growth of this sector. Data centers act as a supporting infrastructure that draws a much larger digital economy around them.