NITI Aayog Urges States to Evaluate Resources Before Approving Data Centres

As Indian states compete to attract investments in data centres, NITI Aayog has introduced a comprehensive framework to guide governments in evaluating these projects thoroughly before approval. The move aims to ensure that states possess the necessary infrastructure and resources to support the rapid expansion of data centres, which play a crucial role in the country’s growing artificial intelligence (AI) sector.

Titled “Data Centre Evaluation Framework to Help States Plan for Sustainable Growth,” the report encourages states to evaluate more than just the investment figures announced by developers. It stresses the importance of verifying the availability of critical inputs such as electricity, water, land, and related infrastructure to guarantee these projects can operate effectively over time.

The framework offers a structured approach for states to align project evaluation with their own priorities, resource capacities, and development goals. It identifies five key pillars for assessment: power and energy, water and cooling requirements, site selection along with environmental sustainability, economic and strategic value, and policy and implementation mechanisms.

By applying this framework, states can make informed decisions that balance the need for attracting investment with the realities of infrastructure readiness and long-term sustainability. This approach also helps avoid potential pitfalls such as overburdened power grids or water shortages that might arise from unplanned data centre expansion.

Assessing Power and Water Capacity

One of the framework’s central recommendations is a thorough examination of electricity availability. States are advised to analyze whether their current grids can handle the additional load from new data centres, factoring in future growth and necessary upgrades. Understanding the total electricity demand of proposed facilities and the cost implications of enhancing infrastructure is critical.

Water supply is another key concern, especially as data centres often require substantial water volumes for cooling. The report urges states to prepare a detailed seasonal water balance spanning 20 to 30 years, covering surface water, groundwater, municipal sources, and treated wastewater. It emphasizes protecting existing users such as households, farmers, and industries by ensuring water allocations to data centres do not reduce dependable supply.

In regions facing water stress, the framework advises against approving projects that would worsen resource depletion. It also highlights the importance of choosing cooling technologies that minimize water use.

Site Selection and Environmental Considerations

States are encouraged to designate specific zones as data-centre-ready based on criteria like land title verification, permitted land use, zoning regulations, and potential for future expansion. The framework suggests prioritizing locations with existing grid and water infrastructure, especially areas rich in renewable energy sources to reduce transmission losses and carbon footprint.

Evaluating Economic Impact and Public Support

The report calls on states to assess the net economic benefit of data centre projects beyond headline investment figures. This includes weighing the value of incentives such as land grants, infrastructure support, and electricity subsidies against the broader benefits these projects bring to the local economy.

States should also consider how projects contribute to employment, skill development, research and development, and procurement from domestic suppliers. Encouraging the use of Indian technology and infrastructure vendors aligns with national priorities.

To ensure accountability, the framework recommends linking incentives to specific, measurable outcomes including project commissioning timelines, renewable energy adoption, energy and water efficiency, employment generation, and local procurement levels. Clear targets and progress monitoring mechanisms should be established, along with conditions for suspending support if commitments are not met.

Streamlining Approvals

To facilitate smoother project execution, the report suggests implementing a time-bound, end-to-end digital single-window system for data centre approvals. Publishing a transparent approval matrix detailing required clearances, responsible authorities, processing times, fees, and escalation processes would help developers and officials alike.

India’s drive to expand its AI economy requires robust data infrastructure, and data centres form the backbone of this growth. By adopting NITI Aayog’s framework, states can better balance rapid investment attraction with sustainable resource management and economic value creation, laying a stronger foundation for future digital advancements.