Discuss how inter-state competition for data centre investment, absent central coordination, risks a 'race to the bottom' in environmental and resource standards.

India's data centre capacity has grown from about 375 MW in 2020 to around 1,500 MW by 2025 [1], with hyperscale AI investment now sought aggressively by States. In the absence of a national framework on power and water allocation, this competitive federalism risks degenerating into a 'race to the bottom', where standards are traded for investment.

Drivers of the competitive race

• States such as Maharashtra, Telangana, Karnataka and Rajasthan court investors through tax exemptions, subsidised land, captive power tariffs and 'essential services' status.
• Since siting is decided largely by energy cost and access — 60–70% of operating costs [2] — States compete chiefly by cheapening power and clearances.
• Incentives are negotiated bilaterally, so each State's concession becomes the next State's baseline.

Environmental and resource consequences

• Water: data centres already consume roughly 150 billion litres annually, projected to more than double by 2030; a 100 MW hyperscaler needs about 2 million litres a day for cooling [2]. Clustering in Mumbai, Chennai, Hyderabad and Bengaluru collides with urban and irrigation demand in States that NITI Aayog's Composite Water Management Index already rates as stressed [3].
• Power: guaranteed 24x7 supply for rising rack densities (now averaging 8 kW) [2] is often met from fossil-heavy generation, transferring emissions and grid-strengthening costs to the public.
• Regulatory dilution: siting and cooling-technology norms become bargaining chips rather than binding standards.

The coordination gap

• No central statute governs resource consumption by data centres; environmental clearances and State Electricity Regulatory Commissions act piecemeal.
• Cumulative, cross-State impacts on shared river basins and the national grid remain unassessed.

Competition among States is a legitimate engine of investment, but it becomes self-defeating when the resource base itself is bid away. A Centre-State framework — uniform floor standards on water-efficient cooling, mandatory renewable and round-the-clock clean power sourcing, and disclosure of water and energy intensity — would let India host the AI economy while honouring its SDG-6 and SDG-13 commitments, converting a race to the bottom into competition on efficiency.