India's Data Center Expansion May Increase Import Bill and Pressure on Current Account Deficit

India’s push for data center expansion may increase the country’s import bill and put pressure on its current account deficit (CAD) . According to HSBC, 75% of the total cost of building data centres in India is import-dependent. However, HSBC argued that data centre investments need not necessarily weaken the rupee despite the potential rise in the import bill. Adequate foreign capital inflows and a staggered investment cycle could help India manage the pressure on its balance of payments (BoP). It will attract billions of dollars in investments and boost services exports over the coming years, HSBC said. Imports account for around $21 billion of the total $30 billion cost of building 1 GW of data centre capacity. Chips alone could cost around $18 billion per GW, assuming 70% of the infrastructure uses graphics processing units (GPUs) and the remaining 30% uses central processing units (CPUs). India plans to increase its data centre capacity from 1.5 GW to around 6.5 GW, implying an additional 5 GW of capacity. The report estimates that chip imports for this expansion could cost around $90 billion, equivalent to 2.2% of GDP. “Add to this cooling infra, electrical equipment and annual hardware refreshes, the cost could rise to $ 105 billion, i.e. 2.5% of GDP ,” HSBC highlighted. India’s data centre expansion could put pressure on its current account deficit (CAD) because imports are likely to rise before the benefits of higher services exports materialise once the facilities become operational. HSBC noted that data centres typically take 9–24 months to build, creating a time gap between the initial investment and the earnings they generate. During the initial phase, construction focuses on domestic civil works, while hardware imports increase gradually. These include advanced chips, GPU/CPU servers, specialised cooling systems and electrical equipment. In addition, imports of proprietary software licences and maintenance services from global vendors could add to the cost. The report also flags potential services outflows from software licences, cloud-architecture intellectual property and technical consultancy. As a result, the CAD could rise during the data centre build-out phase. However, HSBC said the impact on the balance of payments would depend on two conditions: greater reliance on foreign capital to fund imports and a staggered investment cycle that allows older facilities to generate services export revenues as new capacity is built. “Under our scenario, the c/a deficit rises initially but is always funded by capital inflows. The balance of payments (current plus capital account) remains manageable through the years, and even improves with time, as computing-services exports grow,” HSBC noted. India could finance the import component of data centre investments through external commercial borrowings (ECBs), debt securities and foreign direct investment (FDI) . This would help cover the higher import bill through capital inflows, limiting the impact on the overall balance of payments. HSBC suggests a combination of foreign and domestic funding, with foreign capital financing imported equipment and domestic funds supporting locally sourced components. The second condition is a staggered investment cycle. Instead of concentrating investments within a short period, India should spread data centre capacity additions over several years. This would allow existing facilities to start generating services export revenues while new projects continue to require imports. Such an approach could reduce the pressure on the current account deficit during the construction phase. The report has outlined a five-year scenario in which India adds 5 GW of data centre capacity through staggered investments. Under this scenario, annual capacity additions would stand at 0.4 GW in the first year, 0.5 GW in the second year, 1 GW in the third year, and 1.5 GW each in the fourth and fifth years. The report assumes that 70% of the new capacity will support modern AI workloads, while the remaining 30% will cater to traditional data centre requirements. It also assumes that 70% of the capacity will be co-developed with global technology platforms, while the remaining 30% will be domestically owned and financed. Further, around 70% of the capacity is expected to serve customers outside India, generating services export revenues. Under these assumptions, the data centre import bill could rise from around 0.1% of GDP in the first year to 0.7% by the fifth year. However, services export revenues are expected to increase gradually and cover more than half of the import costs by the fifth year. The report assumes that around two-thirds of the returns will be repatriated to foreign investors, while the remaining one-third will be retained to meet operating expenses. As a result, India’s current account deficit could increase during the first four years before stabilising in the fifth year. However, the overall balance of payments is expected to remain manageable, with the surplus increasing as computing and AI-related services exports grow. Apart from its impact on the rupee and external finances, the report highlights the need to assess the broader economic and environmental costs of data centre investments. Data centres require significant amounts of land, electricity and water. They also need substantial financial support. The report argues that India should carefully assess resource availability, fiscal costs and environmental implications while encouraging investments in the sector. While data centres may not generate employment on the scale of labour-intensive industries, they could support services exports, strengthen India’s AI ecosystem and improve productivity over the medium term. India is pushing for data center expansion, around $70 billion of data centre investments are already underway in India, while another $90 billion worth of projects have been announced. The country’s data centre capacity, which stood at 1.5 GW in 2025, could increase to 5-8 GW by 2030, driven by rising demand for artificial intelligence (AI), digitalisation and expansion by global technology companies. Building data centers are import heavy process. However, HSBC argued that India should not view a rising import bill as an immediate concern if it reflects productive investments and attracts adequate foreign capital in the future. A combination of foreign funding, staggered capacity additions and higher computing-services exports could help India make its data centre expansion rupee-friendly.