Financial frameworks must evolve quickly to support India’s proliferation of data centres

The Union budget for 2026-27 proposed a tax holiday until 2047 for eligible foreign providers using India-based data facilities for global operations, and states are competing aggressively for investments with land and other incentive packages. Recently, Google and Reliance Industries proposed large-scale data centre investments in Visakhapatnam.

Overall investments in the sector are set to exceed $100 billion by 2027. That scale implies a substantial requirement for long-tenor bank debt, institutional capital and hybrid financing structures.

For lenders, the most important challenge lies in selecting the right assets and pricing their risks correctly. Financial institutions including banks, regulators and capital markets need to treat data centres as critical digital national infrastructure rather than a niche segment of commercial real estate.

Credit appraisal, therefore, requires a wider frame than conventional project finance. Revenue visibility remains central and should be tested through enterprise contracts, committed capacity, ramp-up assumptions, customer diversification and contract durability.

Yet, contract strength alone will not define asset quality in this sector; the resource profile of the asset deserves equal weight. Data centres account for 0.5% of India’s electricity consumption and 150 billion litres of annual water use, both expected to more than double by 2030.

Power source, grid quality, renewable-energy access, backup architecture, cooling design, water source, basin stress, flood exposure, heat resilience and the emission trajectory should, therefore, move from the margins of diligence to the centre of underwriting.

The underwriting challenge becomes clearer with the fact that data centres are neither traditional real estate nor conventional power plants that fit neatly into a standard credit template. They are, in fact, a new category, one that combines long-tenor contracted cash flows, technology obsolescence risk, resource intensity, locational and geopolitical sensitivity in a single structure. Lenders who treat them as commercial real estate could misprice the upside.

A credible appraisal model, therefore, needs to examine whether a facility can support future rack densities, liquid cooling and artificial intelligence (AI) workloads without disproportionate retrofitting costs; whether transmission and power readiness are secure; whether cooling and water systems remain viable under heat and drought stress; and whether the developer has a proven operating record in the relevant digital assets.

The strongest financing frameworks will be those that bring infrastructure analysis, technology assessment and market-risk evaluation into one discipline rather than treating them as additional sequential filters. This is the best way to avoid mispricing risks.

International practice is already moving in that direction, as evidenced in Singapore’s Green Data Centre Roadmap, which links additional capacity allocation to efficiency standards, certification and green-energy pathways. The World Bank recommends evaluating facilities by emissions, energy use, water consumption and climate resilience from the design stage.

The European Investment Bank and the International Finance Corporation have both embedded similar disciplines into their financing protocols. The Equator Principles, which remain a common baseline for major international project finance, treat environmental and social risk assessment as integral, not optional.

Back home, the role of the Reserve Bank of India (RBI) is crucial in shaping the financial architecture around these assets. Its directions on green deposits, climate-risk identification and disclosures provide a foundation which can be extended for a more nuanced treatment of data-centre finance.

The next step could include standardized disclosure templates for large data-centre exposures, guidance on utility and climate-sensitive appraisal fields, and a more facilitative framework for instruments such as sustainability-linked loans, green or transition bonds and blended-finance structures.

Such guidance could improve transparency, strengthen underwriting and deepen capital formation around efficient and resilient digital infrastructure.

India’s data-centre expansion is being shaped by strong demand, a visible domestic policy push and a rapidly deepening investment pipeline. The key challenge now is to ensure finance channels this growth into assets that are resilient, energy-efficient and adaptable to technological change.

The next phase will depend on combining climate-sensitive underwriting, innovative capital structures and clear regulatory guidance to build commercially viable and future-ready data centre infrastructure in India.

The author are, respectively, an energy economist, and vice president at a private Indian bank.