India and the United States have moved closer on technology trade under their interim trade agreement, signalling a reset in how New Delhi plans to meet its rapidly expanding digital and artificial intelligence ambitions. By committing to significantly increase trade in technology products such as Graphics Processing Units (GPUs) and data-centre equipment, and by easing investment conditions for foreign infrastructure players, the agreement touches the core of India’s AI, electronics manufacturing, and export strategy.
Why GPUs and data centres are central to the agreement
At the heart of the agreement lies India’s growing demand for computing power. GPUs are critical for training and deploying artificial intelligence models, yet India does not have domestic GPU manufacturing capacity. Global supply is dominated by American companies such as , making imports unavoidable for Indian startups, research institutions, and cloud service providers.
This assumes greater importance as the Union Budget has reduced the annual allocation for the IndiaAI Mission from ₹2,000 crore in the current fiscal to ₹1,000 crore in 2026–27. While the overall mission outlay of ₹10,370 crore remains unchanged, the cut has raised concerns about whether subsidised access to computing power can keep pace with India’s ambitions. Around 40,000 GPUs installed so far under the mission are widely considered insufficient when compared with the scale of computing capacity available to leading global AI firms.
From export controls to strategic accommodation
The commitment to expand GPU trade also reflects a change in the US approach. Under former President Joe Biden, Washington had unveiled a broad export-control framework that restricted the number of advanced GPUs India could import, citing national security considerations. These curbs were set aside after President Donald Trump assumed office.
In securing more favourable terms, India has avoided the kind of strict technology controls imposed on China, which has been barred from directly accessing the most advanced AI chips. Strategically, this places India in a relatively trusted category within US technology policy, strengthening its role as a partner in global AI and digital supply chains.
Tax incentives and the data-centre push
Data centres form the second major pillar of cooperation. As part of the trade negotiations, the US had sought easier market access for its companies, including tax incentives, affordable land, and reliable access to power and water. India’s decision to offer a tax holiday until 2047 for foreign firms setting up data centres addresses one of these key demands.
The policy shift has already triggered major investment announcements. Google has committed $15 billion to build a 1 GW data centre in partnership with the Adani Group. Microsoft plans to invest $17.5 billion with a focus on AI infrastructure, while Amazon has announced a broader $35 billion investment over five years, with data centres expected to be a significant component.
The scale of India’s data-centre opportunity
India’s data-centre market is currently valued at about $10 billion, generating around $1.2 billion in revenue in FY24. Industry estimates suggest that nearly 795 MW of new capacity could be added by 2027, taking total installed capacity to around 1.8 GW. The government has indicated that recent Budget measures could catalyse investments worth up to $200 billion over the long term.
Beyond AI, data centres underpin cloud computing, digital public infrastructure, fintech, and e-governance, making them foundational to India’s digital economy.
Electronics trade and the $100-billion ambition
The interim agreement also has implications for electronics manufacturing and exports. After the US reduced tariffs on Indian goods from 50% to 18%, industry projections suggested that bilateral electronics trade could potentially reach $100 billion.
Electronics exports stood at ₹3.27 lakh crore (about $38 billion) in 2024–25, with the US as the largest destination. The sector is concentrated in states such as Tamil Nadu, Karnataka, Uttar Pradesh, and Maharashtra, employing over two million workers directly and supporting a wide supplier ecosystem.
Apple, iPhones, and supply-chain geopolitics
Recent trade frictions had briefly cast uncertainty over the electronics sector, especially when US threats of tariffs on India-made iPhones surfaced. However, has continued expanding its manufacturing footprint in India under the production-linked incentive (PLI) scheme.
India now accounts for nearly a quarter of global iPhone production, second only to China. The interim trade framework, along with initiatives such as iCET and TRUST, reinforces India’s position as a trusted manufacturing base within US-aligned supply chains.
Implications for India’s AI and industrial strategy
Taken together, increased GPU imports, generous data-centre incentives, and improved electronics market access point to a pragmatic policy shift. As public subsidies under the AI mission tighten, India is relying more on foreign capital, imported hardware, and strategic partnerships to sustain momentum.
The policy challenge ahead will be to leverage this window to build domestic capabilities in semiconductors, energy-efficient infrastructure, and AI applications, while managing the risks of long-term dependence on imported critical technologies.
What to note for Prelims?
- India lacks domestic GPU manufacturing and depends on imports.
- The IndiaAI Mission aims to subsidise compute access but faces reduced annual allocations.
- A tax holiday until 2047 has been announced for foreign data-centre investments.
- US export controls on advanced technology vary across countries, with China facing the strictest limits.
What to note for Mains?
- Examine the strategic significance of India–US cooperation in AI hardware and data infrastructure.
- Discuss the trade-off between attracting foreign investment and achieving technological self-reliance.
- Analyse the role of electronics exports and data centres in India’s broader industrial policy.
- Assess risks associated with dependence on imported GPUs and critical digital infrastructure.