Why in news?

Under their interim trade agreement, India and the United States have agreed to significantly expand trade in technology products, particularly Graphics Processing Units (GPUs) and other equipment critical for data centres, alongside deeper joint technology cooperation.

The move aligns with India’s broader push to strengthen its digital and AI ecosystem. New Delhi has announced a tax holiday for foreign firms setting up data centres, reduced budgetary support under its flagship AI mission—shifting focus from subsidies to market-driven investment. It is witnessing a surge in iPhone exports, signalling growing integration with global technology supply chains.

As India lacks domestic GPU manufacturing capacity, it will rely heavily on imports, primarily from US-based firms such as Nvidia, to meet the rapidly rising compute demand of AI startups developing models and applications.

The agreement is expected to improve access to high-end computing hardware while positioning India as an attractive destination for data centre investments.

What’s in Today’s Article?

• On GPUs: A Positive Shift for India’s AI Ambitions
• India Meets Key US Demand on Data Centres
• A $100 Billion Opportunity for India’s Electronics Sector

On GPUs: A Positive Shift for India’s AI Ambitions

• The IndiaAI Mission saw its allocation reduced to ₹1,000 crore for 2026–27, down from ₹2,000 crore in the current fiscal, raising concerns about India’s AI momentum.
• The ₹10,370 crore mission aims to subsidise GPU access for startups and researchers developing AI models.
• So far, around 40,000 GPUs have been installed under the mission—widely seen as inadequate, especially when compared to the massive compute capacity available to leading American AI companies.
• India–US Trade Deal Offers an Alternative Route
  • The India–US interim trade agreement to increase trade in GPUs offers a market-driven alternative to public subsidies.
  • Since India lacks domestic GPU manufacturing, improved access to imports—primarily from US firms—can help bridge the compute gap for Indian startups.
• Contrast with Biden-Era Export Controls
  • This marks a clear departure from the approach under former US President Joe Biden.
  • Before leaving office, the Biden administration introduced stringent export controls on GPUs, placing limits on the number of GPUs India could import, citing national security concerns.
    • These restrictions were part of a broader global framework.
  • After President Donald Trump took office, the framework was set aside, easing access for partners like India.
• Escaping China-Style Technology Restrictions
  • From a strategic standpoint, India has secured favourable terms:
    • It has avoided China-style export controls, under which Beijing is barred from importing the most advanced GPUs
    • Although US restrictions on China have seen some recent dilution, they remain far stricter than those applied to India
  • This positions India as a trusted technology partner, rather than a restricted market.

India Meets Key US Demand on Data Centres

• Data centres have emerged as a major pillar of India–US technology cooperation. In a significant policy move, India announced a tax holiday until 2047 for foreign companies setting up data centres in the country, addressing a long-standing US demand.
• This incentive was announced in the Union Budget and signals India’s intent to position itself as a global hub for digital and AI infrastructure.
• US Demands in Trade Negotiations
  • During bilateral trade talks, the United States sought:
    • Greater market access for US data centre companies
    • Tax incentives
    • Affordable access to land, electricity, and water
    • Duty exemptions on select imports
  • By offering a long-term tax holiday, India has acted on one of the core US asks, strengthening the investment climate for foreign tech firms.
• Major US Investments Announced
  • Several US technology giants have announced large-scale investments in India’s data centre ecosystem:
    • Google: Announced a $15 billion investment (October) to build a 1 GW data centre in partnership with Adani Group.
    • Microsoft: Committed $17.5 billion (December), primarily focused on AI data centres.
    • Amazon: Plans to invest $35 billion over five years in India, with a significant portion expected to support data centre expansion.
  • These investments are driven by the surging compute demand of artificial intelligence.
• India’s Data Centre Market Outlook
  • Current market size: ~$10 billion
  • Revenue in FY24: ~$1.2 billion
  • Capacity addition: 795 MW of new capacity expected by 2027; Total capacity projected to reach 1.8 GW.

A $100 Billion Opportunity for India’s Electronics Sector

• The reduction of US tariffs on Indian goods from 50% to 18% has opened the door to a major expansion of India’s electronics manufacturing sector.
• Industry estimates suggest India–US electronics trade could reach $100 billion, driven by improved market access and smoother technology flows.
• Electronics Exports Gain Momentum
  • Electronics have emerged as a key growth engine for India:
    • Exports in 2024–25: ₹3.27 lakh crore (≈ $38 billion)
    • Largest export market: United States
  • The new trade framework is expected to accelerate export growth and deepen integration with global value chains.
• Employment and Industrial Footprint
  • India’s electronics manufacturing sector:
    • Employs over 2 million workers directly
    • Is concentrated in Tamil Nadu, Karnataka, Uttar Pradesh, and Maharashtra
    • Supports a broad ecosystem of component suppliers, assemblers, and technology service providers