The Evolution of Data Centres: A Global and Indian Perspective

Should India incentivise local data centres, apart from a handsome package for domestic chip manufacturing? The important issues of sovereignty and cultural values are at stake.

What is a Data Centre?

In today's digital era, data centres are the heart of the modern economy, facilitating seamless operations for companies across various sectors such as technology, finance, and healthcare. Simply put, a data centre is a facility used to house computer systems and associated components, including telecommunications and digital data storage systems. It is the physical location where IT infrastructure such as servers, data storage drives, and network equipment are kept, allowing businesses to store, process, and disseminate large amounts of data.

The Rising Power of AI Data Centres

With the advent of artificial intelligence (AI), the role and functionality of data centres have expanded significantly. AI-driven tasks, particularly those involving machine learning (ML) and large language models (LLM), demand immense computational power and energy. This increased demand has led to the need for specialised AI data centres equipped with powerful graphics processing units (GPUs), such as those manufactured by Nvedia. These GPUs can reach high temperatures, necessitating innovative cooling solutions like liquid cooling systems to prevent overheating.

The Energy Challenge

The exponential growth in data centres, particularly those supporting AI, has created a massive demand for electric power. The International Energy Agency predicts that by 2026, data centres worldwide will consume as much energy annually as Japan. This surge in energy demand poses a significant challenge, especially as many regions struggle with strained electrical grids. To meet these energy needs, some companies have turned to alternative energy sources, including natural gas and even coal plants, despite their commitments to reducing carbon emissions.

Key Data Centre Hubs

Certain regions have emerged as major hubs for data centres, driven by factors such as tax incentives, climate, electricity costs, and the risk of natural disasters. Northern Virginia, known as Data Centre Alley, is the largest hub, handling nearly 70% of global digital traffic. Other primary markets include Silicon Valley, the tri-state area (New York, New Jersey, and Pennsylvania), Phoenix, Dallas, Atlanta, Chicago, Portland, Seattle, and Los Angeles. These areas attract data centre investments due to favourable conditions and significant tax incentives.

Local Economic Impact

Data centres bring both benefits and challenges to local communities. On the one hand, they can generate substantial tax revenue and create jobs. For instance, Northern Virginia’s Loudoun County benefits from $600 million in annual tax revenue from data centres. On the other hand, the large, often noisy facilities can be seen as eyesores and disrupt local communities. Some regions, like Arkansas, Illinois, and Arizona, have enacted laws to limit or pause new data centre constructions to address these concerns.

Innovative Energy Solutions

As data centres become increasingly energy-intensive, operators are exploring nuclear power as a sustainable solution. Nuclear reactors provide a reliable and carbon-neutral source of energy. Companies like Amazon and Microsoft are investing in nuclear-powered data centres to meet their growing energy needs. Additionally, experimental technologies such as nuclear fusion are being explored as future energy sources for data centres.

Policy Prescriptions for Data Centres in India

As India approaches the conclusion of its Lok Sabha general elections, anticipated to result in another term for Prime Minister Narendra Modi, it is imperative to focus on robust policy frameworks to support the growth of data centres in the country. Here are three critical policy recommendations:

Territorial Sovereignty

To safeguard national security and sovereignty, it is crucial that data centres in India are located on Indian soil. While machinery and hardware can be imported, it is essential that the data itself remains within the country's borders. This ensures that Indian laws and regulations govern the data, thereby protecting it from foreign jurisdictions. Implementing stringent data localisation policies will help maintain control over sensitive information and bolster national security.

Sovereign AI Models

India must invest in developing its own AI models and software applications. Relying on AI models trained abroad, such as OpenAI’s ChatGPT or Google’s Gemini, may inadvertently align AI responses with foreign cultural values, which might not resonate with India’s indigenous values. By fostering homegrown AI capabilities, India can ensure that AI technologies align with its cultural context and value systems. This initiative will also promote self-reliance in AI technology and reduce dependence on foreign entities.

Other forward-looking nations are also addressing this issue; for instance, in December, the Singaporean Government announced plans to build a large language model (LLM) as part of its Southeast Asia AI Plan. This initiative was prompted by the “strategic need to develop sovereign capabilities in LLMs. Singapore and the region’s local and regional cultures, values, and norms differ from those of Western countries, where most large language models originate.” The LLM project also supports Singapore’s National AI Strategy 2.0. By taking similar steps, India can bolster its AI infrastructure, ensuring alignment with national values and reducing reliance on external AI technologies.

Energy Management and Infrastructure

Given the energy-intensive nature of data centres, it is essential to strategically locate them near reliable energy sources. Following the global trend, India should consider establishing data centres close to nuclear plants or other stable energy sources to meet their high energy demands efficiently. This approach will help manage the peak summer energy demand, which is already at an all-time high in the country. Additionally, a national-level policy, rather than state-level incentives alone, should be implemented to encourage the establishment of data centres. This could include subsidies and incentives similar to those provided for semiconductor and chip manufacturing facilities.

Integrated Incentives for Chip Manufacturing and Data Centres

Incentives for domestic chip manufacturing and subsidies for data centres in India are not mutually exclusive policy options. While chip manufacturing represents a long-term investment aimed at eventually reducing reliance on GPUs from companies like Nvidia and AMD, which currently hold a virtual monopoly, the benefits of this initiative may take a decade to materialise. In the interim, incentivising local data centres, even with imported chips, can help India address the three strands of sovereignty issues—data localisation, sovereign AI models, and strategic energy management—as discussed earlier.

It is crucial that these initiatives are harmonised and not developed in isolation by different ministries or entities within the Government of India, which often face challenging barriers to communication. A coordinated approach will ensure that efforts in chip manufacturing and data centre development complement each other, driving technological self-reliance and economic growth more effectively. This integrated policy framework will facilitate a synergistic environment, optimising both short-term and long-term benefits for India’s digital and technological landscape.

Summing Up and Looking Forward

Data centres are poised to become the backbone of AI and technological advancements globally. For India, developing a clear and proactive policy framework is crucial to harness the potential of data centres. With Prime Minister Modi’s anticipated return, it is an opportune time to frame and implement these policies swiftly. By ensuring data sovereignty, fostering indigenous AI development, and strategically managing energy resources, India can position itself as a global leader in the data centre industry.

Coupled with the existing package for domestic chip manufacturing, this strategic approach will not only enhance technological capabilities but also drive economic growth and innovation in the country. By aligning these initiatives, India can create a robust ecosystem that supports both immediate and long-term technological advancements, securing its position at the forefront of the digital revolution, while protecting its cultural and civilizational values.