Data center deals stall in India as US tech firms pause leases

Major American technology firms are putting the brakes on plans to rent massive data centers in India as relations between Washington and New Delhi hit rough waters over trade disagreements.

Big Tech orders for enormous computing facilities remain under consideration, but companies are taking their time before making final commitments, according to Alok Bajpai, who leads India operations for NTT Global Data Centers. “They are holding the pen and saying let me not sign it just yet,” Bajpai noted.

Large-scale computing facilities from companies like Amazon, Microsoft and Google make up roughly 30% of data center demand across India right now. Property consulting firm Anarock Capital expects this figure to climb to 35% in coming years.

Potential data center agreements have been stuck in limbo for more than two months, said an industry consultant who requested anonymity because of business considerations. The same source indicated these tech giants might reconsider their strategies within three to six months.

Relations between Washington and New Delhi deteriorated sharply over the past two months. The United States first slapped a 25% duty on Indian goods this past August, then doubled down by raising that figure to 50%. American officials cited India’s decision to buy Russian oil as justification for the penalties.

AI and cloud demand still growing in India

Washington followed up with another blow in September. President Donald Trump announced a new $100,000 fee for fresh H-1B visa applications.

“The new U.S. tariffs on Indian exports have unsettled global supply chains and made equipment and input costs harder to pin down,” explained Jitendra Soni, a partner at law firm Argus Partners specializing in technology matters. Soni added, as quoted by CNBC, that contract negotiations now routinely include “clauses for tariff pass-throughs, change in law, and phased capacity.”

Industry watchers predict India’s data center capacity will nearly triple over five years, jumping from 1.2 gigawatts to more than 3.5 gigawatts by 2030, even with current tensions.

Demand has been climbing thanks to lower operating costs and increasing needs for online shopping services, cloud systems and artificial intelligence applications. But a shortage of graphics processing units (GPUs) had already put a damper on expansion plans before trade friction added another complication. “Hyperscalers haven’t vanished, but have just hit a pause,” the consultant said.

Google has been in discussions with officials in Andhra Pradesh state about building a 1-gigawatt facility, while OpenAI is searching for partners on a comparable project, according to reports.

“India’s underlying appeal has not dimmed and remains compelling,” Soni stated. “But deals are now closing more slowly, and with far more lawyering around who bears the next global shock.”

India GDP growth beats forecasts at 7.8%

Despite facing tough American tariffs, India has two things working in its favor. Better than anticipated economic expansion and rising spending by consumers at home, analysts say.

Goldman Sachs bumped up its growth outlook for India by 60 basis points in September, forecasting 7.1% for calendar year 2025 and 6.7% for fiscal year 2026. This revision accounts for negative effects from American duties.

Factory production, building projects and service industries pushed growth higher, while inflation came in lower than expected, also helping the real growth rate.

“Lower inflationary pressures, the impending adjustment of the GST slabs to allow for greater spending and the ongoing festive season through to Diwali in October will keep private consumption supported,” OCBC Global Markets Research said in a September 1 report.

However, the firm maintained its forecast at an average 6% for fiscal year 2026. The World Bank projects 6.3% and the International Monetary Fund estimates 6.4% for that same period.

Prime Minister Narendra Modi announced major goods and services tax changes on August 15. The current system has four brackets at 5%, 12%, 18%, and 28%. Reuters reports the new structure will simplify things down to just two rates at 5% and 18%, shifting most items to lower brackets. This should encourage more spending.

These changes should take effect by Diwali in October, when shopping traditionally picks up.

The smartest crypto minds already read our newsletter. Want in? Join them.