If Data Is the New Oil, What Does That Make Data Centres?

After Reading This Article You Can Solve This UPSC Mains Model Question:

“Data centres are emerging as critical infrastructure in the digital economy, much like refineries in the industrial era.” Discuss this statement in the context of India. Examine the potential economic benefits as well as the environmental, energy, and governance challenges associated with the rapid expansion of data centres in the country. 15 Marks/250 word (GS-3, Science & Technology)

Context:

With the rapid expansion of the digital economy, data is increasingly described as the “new oil”, powering AI, cloud services, and digital governance. In this context, data centres have emerged as critical digital infrastructure, akin to refineries that process and store this resource. Without careful regulation, India could risk becoming a hub for resource-intensive and poorly designed data centres, raising concerns over energy use, water stress, environmental governance, and policy accountability.

Significance for India: Beyond Information Technology:

1. Data Sovereignty & Strategic Autonomy

• Data as a National Asset: In the era of “Data Colonialism,” local data centers ensure that the personal and financial data of 1.4 billion Indians stays under Indian jurisdiction (DPDP Act, 2023).
• Cyber Security: Storing critical national data (Aadhaar, UPI, Health Records) in domestic “refineries” reduces vulnerability to international geopolitical tensions and overseas server outages.

2. Fueling the AI & Digital Public Infrastructure (DPI)

• The AI Engine: India aims to be a global AI powerhouse. Generative AI and Large Language Models (LLMs) require massive GPU-led computing power that only Hyperscale Data Centers can provide.
• Digital India Backbone: The seamless functioning of UPI, ONDC, and Gati Shakti depends on “Zero-Latency” and “Five-Nines” (99.999%) uptime provided by Tier-4 data centers.

3. Economic Multiplier & Investment Magnet

• FDI Inflow: The sector is a massive magnet for Foreign Direct Investment. Global giants (AWS, Google, Microsoft) have pledged over $25 billion in Indian data infrastructure by 2030.
• Real Estate & Construction: Data centers are driving a new asset class in real estate, creating high-value construction jobs and boosting the domestic steel and cement industries.

4. Transition to a “Green Digital Economy”

• Energy Transition: As data centers demand massive power, they are forcing the grid to modernize. India’s Green Energy Open Access rules allow these centers to procure 100% renewable energy, accelerating India’s Net Zero 2070 goals.
• Innovation in Cooling: The Indian climate is a “testbed” for extreme-weather cooling technologies. Success here (e.g., liquid immersion cooling) makes Indian firms global leaders in tropical data center management.

5. Social Significance: Closing the Digital Divide

• Edge Computing: By spreading data centers to Tier-2 and Tier-3 cities (decentralization), the government ensures that high-speed internet and digital services are not just “metro-centric” but reach the “Antyodaya” (the last person).

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About Data Centres:

Good vs Bad Data Centres

(a) Good Data Centres

A good data centre must ensure system-wide efficiency, not just paper compliance:

• Location: Reliable power, grid capacity, fibre connectivity; project pays for grid upgrades.
• High utilisation: Servers actively used; avoids idle capacity through proper demand estimation.
• Efficient cooling (core design):
  • Optimised airflow management
  • Higher inlet temperatures within safe limits
  • Use of ambient air/water where feasible
  • Liquid cooling for AI workloads
• Water stewardship:
  • Minimal use of potable water
  • Recycled/non-potable water preferred
• Energy discipline:
  • Reduced dependence on diesel backup
• Measurement & transparency:
  • Continuous monitoring of energy, water, emissions, downtime

(b) Bad Data Centres (Risk of ‘Data Dumping’)

• Inefficient in practice despite being “efficient on paper”.
• Typical features:
  • Located in water-stressed regions with water-intensive cooling
  • Outdated cooling systems, poor airflow control
  • Externalisation of grid upgrade costs to households
  • Minimal local employment despite heavy resource use

Global Experience: Warning Signals

1. The “Water Wars” of Santiago, Chile

• The Conflict: Google’s proposed Cerrillos Data Center faced fierce local opposition in water-stressed Santiago. Residents and a Chilean environmental court challenged the project’s use of groundwater from a critical aquifer during a mega-drought.
• The Result: The court revoked the initial permit, forcing Google to switch to an air-cooled design.
• Lesson: Environmental assessments must account for climate change impacts on local water tables, not just current usage.

2. Community Resistance in the USA

• North Carolina: A major data center proposal was rescinded after the mayor signaled a unanimous defeat due to resident concerns over noise pollution and property values, despite the developer’s promises of “green” features.
• Minnesota (Hermantown): Residents sued to halt a hyperscale project (“Project Loon”), citing secrecy and the lack of a proper environmental review. They discovered officials had hidden the project’s nature for a year.
• Lesson: Transparency and community engagement are non-negotiable. Opaque contracts and NDAs (Non-Disclosure Agreements) with public utilities lead to local distrust and litigation.

3. Regulatory Pushback in Europe

• The Netherlands & France: Concerns over grid stability and water use led to temporary bans and new transparency laws requiring data centers to disclose exact energy and water efficiency metrics to the public.
• Lesson: Governments must set binding efficiency targets (PUE and WUE) rather than relying on voluntary corporate pledges.

Issues for India:

1. The “Resource Stress” Paradox

• Water Scarcity: India has 18% of the world’s population but only 4% of its freshwater. Data centers are projected to consume 358 billion liters annually by 2030.
• Thermal Vulnerability: One-third of India’s 213 data centers are located in “Extreme Heat Zones.” Higher ambient temperatures (reaching 48°C) force cooling systems to work harder, guzzling more water and power than the same design would in Europe.
• Grid Dependence: Despite RE growth, 78% of India’s grid remains fossil-fuel dependent. Clustered data loads in cities like Mumbai are straining local grids, forcing companies to rely on polluting diesel generators for backup.

2. Regulatory Fragmentation & “Race to the Bottom”

• The Patchwork Problem: Data center policy is split—Land and Water are State subjects, Power is Concurrent, and Data (MeitY) is Union. This creates a “patchwork” where states compete to attract investment by cutting corners on environmental clearances.
• Opaque Contracts: Many state incentives offer “expedited clearances” and “single-window approvals” which can lead to the bypassing of rigorous community-level environmental impact assessments.
• Voluntary vs. Mandatory: Current ESG (Environmental, Social, and Governance) standards for data centers remain largely voluntary, allowing for “digital greenwashing” where firms claim sustainability without audited evidence of water-neutrality.

3. Climate Change Exposure (The XDI Warning)

• Top-Exposed States: Uttar Pradesh (ranked 2nd globally), Tamil Nadu, Maharashtra, Karnataka, and Telangana are in the top 100 most climate-exposed hubs.
• Infrastructure Fragility: Coastal hubs like Chennai and Mumbai face high risks of sea-level rise and flooding, which could disrupt the subsea cables that are the “arteries” of the data economy.

4. Demographic & Social Friction

• Job-to-Resource Ratio: Data centers are capital-intensive but labor-light. They provide fewer permanent local jobs compared to the massive amounts of water and land they consume, creating a “low-benefit, high-cost” scenario for local communities.
• Urban-Rural Inequity: Mega-projects in rural fringes (like Yotta in Tusiana village) often lack basic local infrastructure while using deep borewells (200ft+) that risk depleting the groundwater used by local farmers.

Why ‘Dumping’ of Data Is Not Inevitable in India:

1. The Necessity of High-End Infrastructure

Unlike low-grade waste, data centers cannot function in isolation or with substandard components.

• Grid Coordination: Hyperscale centers (100MW+) require massive, stable grid capacity that forces developers to coordinate with public utilities. This interdependence naturally filters out projects that cannot afford the necessary Grid Upgrades or the high standards of Tier-4 redundancy.
• Hyperscale Efficiency: The current investment boom is led by global giants (Google, Microsoft, Amazon) and domestic leaders (Yotta, Sify) who prioritize Liquid Cooling and Energy Efficiency to maintain their own global ESG ratings. For them, a “bad” data center is an operational liability, not just an environmental one.

2. Strong Judicial & Regulatory Guardrails

• The Puttaswamy Legacy: The Supreme Court’s recognition of privacy as a fundamental right (Article 21) led to the DPDP Act, 2023. This law mandates data fiduciaries to handle data as “trustees,” making it legally risky to operate in opaque, substandard facilities.
• Green Tribunals (NGT): India possesses dedicated environmental courts (National Green Tribunal) and a vocal Supreme Court that have a track record of halting projects that bypass ecological norms. This creates a “judicial risk” for developers looking to cut corners on water budgets.

3. Vocal Civil Society & Community Engagement

The rise of “Digital Hygiene” and localized activism is making it harder for developers to hide behind opaque contracts.

• End of NDAs: Recent pushback (similar to the North Carolina and Santiago examples) has signaled to developers that Transparency is a business necessity. Communities in India are increasingly sensitive to deep borewell usage and noise pollution, pushing firms toward early engagement and disclosure.
• The “Nudge” Economy: Government initiatives are shifting toward “cleaner compliance.” For instance, the Draft Digital Personal Data Protection Rules, 2025 emphasize self-discipline and proactive privacy measures, encouraging a culture where “bad” data centers are economically and socially shunned.

Government Initiatives:

1. Draft National Data Centre Policy (MeitY)
   • Aims to recognise data centres as critical digital infrastructure.
   • Focus on ease of doing business, infrastructure status, and coordinated Centre–State approach.
2. State Data Centre Policies
   • States like Maharashtra, Tamil Nadu, Telangana, Uttar Pradesh, Gujarat offer:
     • Land at concessional rates
     • Power tariff subsidies
     • Stamp duty exemptions
     • Single-window clearances
3. Digital India Programme
   • Expansion of digital public infrastructure (DPI) such as UPI, Aadhaar, DigiLocker increases domestic data demand, incentivising local data centres.
4. Data Protection and Data Localisation Framework
   • The Digital Personal Data Protection Act, 2023 encourages domestic data storage and processing, boosting data centre demand.
5. IndiaAI Mission
   • Promotes AI ecosystem development, increasing need for high-capacity and AI-ready data centres.

The Strategic Roadmap: “Green, Sovereign, and Inclusive”:

1. Mandatory Technical & Efficiency Benchmarking

• From Voluntary to Binding: State governments must shift from “memorandums of understanding” (MoUs) to binding sustainability agreements.
• The 1.3 PUE Standard: Mandate a maximum Power Usage Effectiveness (PUE) of 1.3 for all new hyperscale facilities by 2027.
• WUE Monitoring: Every center should have a Water Usage Effectiveness (WUE) ceiling based on the local basin’s stress levels.
• Public Audit Registry: Create a national, real-time registry where data centers must disclose peak load, water sources, and energy efficiency.

2. Radical Shift in Cooling & Power Infrastructure

• Liquid-First Mandate: For AI-intensive GPU workloads, phase out evaporative cooling (water-intensive) in favor of Liquid Immersion or Direct-to-Chip cooling, which can reduce water and electricity consumption by 30-40%.
• Green Hydrogen & BESS: Replace the “dirty secret” of massive diesel generator farms with Battery Energy Storage Systems (BESS) or Green Hydrogen fuel cells for backup power.
• Waste Heat Recovery: Integrate data centers with district cooling or industrial heating networks to reuse the massive heat generated by servers.

3. Smart Zoning & Decentralization (Edge Computing)

• Regional Diversification: Move away from saturated “Data Capitals” (Mumbai/Chennai). Incentivize “Giga-campuses” in cooler, high-RE regions like Himachal Pradesh, Uttarakhand, or the wind-rich belts of Gujarat.
• Infrastructure Zoning: Designate data centers as “Heavy Infrastructure” under the National Building Code, mandating green buffer zones and noise-cancellation barriers to protect residential property values.
• Treated Wastewater Usage: Strictly prohibit the use of potable/groundwater for cooling. Data centers should be co-located near municipal STP (Sewage Treatment Plant) outlets to use recycled water.

4. Democratic & Transparent Governance

• Community Veto/Review: Following the “Santiago Model,” major projects must undergo a participatory environmental review that includes local panchayats and municipal boards.
• Eliminating Cross-Subsidization: Ensure that the cost of massive grid upgrades for data centers is borne by the developers, not passed on to domestic electricity consumers.
• Education-Industry Linkage: Launch a National Data Center Skill Mission to train a specialized workforce in thermal management and green energy integration, ensuring the “permanent jobs” promise is fulfilled.

Conclusion:

Data centres are indispensable to India’s digital and AI-led growth, but their unchecked expansion risks deepening water stress, energy inequity and environmental degradation. Treating them as critical infrastructure—with transparent siting, strict efficiency norms, and community participation—can ensure they function as refineries of inclusive growth rather than dumping grounds of externalities, aligning digital expansion with sustainability and Viksit Bharat goals.

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