India's data centre surge boosts IT spending but power and water shortages linger

India's information-technology sector has seen its investment share climb to about 4.5% of GDP, driven by a wave of new data centre projects and an upward revision of project costs. The surge reflects a tax holiday for foreign companies and growing demand from Global Capability Centres, artificial-intelligence adoption, and data-intensive services. Despite the upbeat investment figures, analysts caution that chronic shortages of electricity and water pose significant execution risks for these projects.

The country is also experiencing a structural shift toward higher services imports, narrowing its services trade surplus. Increased imports of consultancy, digital, and intellectual-property services, alongside higher foreign travel spending, have contributed to a widening current-account deficit, though higher remittances and a services surplus have partially offset the gap.