Trump aide Peter Navarro questions why Americans are ‘paying’ for AI in India

In December, The Indian Express had reported that in discussions with American companies during the course of their two-day visit to India, officials from a visiting US Trade Representative (USTR) delegation had nudged these companies to follow an “America First” strategy. They were also urged to direct a substantive part of their investments in sectors such as technology and AI to the US and focus on creating meaningful jobs, rather than outsourcing them.

During two meetings with American tech companies and their associates Wednesday and Thursday, the USTR officials are understood to have particularly highlighted investments in AI infrastructure, and how US companies should prioritise the American markets for capex investments in the space on hardware and energy, according to three persons aware of the discussions.

Navarro’s comments also come amid questions around the high energy usage requirements to power AI services around the world. Data centres have a massive energy demand. As per the International Energy Agency, data centre power usage could double by 2026, making the challenge for companies to become net zero or carbon negative by 2030 increasingly unattainable. This has forced companies such as Google and Microsoft — with big stakes in the AI game — to sign deals with nuclear power plants to purchase energy for their data centres.

This paper had earlier reported that the Indian government was open to exploring the use of nuclear energy to power the data centre boom in India, a trend which is already playing out in countries such as the US. As part of framing a national policy on data centres, the IT Ministry is understood to have told the industry that it would encourage them to deploy small modular reactors (SMRs) for long-term, reliable and carbon free power supply, as part of their overall energy mix.

Power consumption and related infrastructure costs are a key part of a data centres’ capital and operational expenditure. According to CareEdge Ratings, 40 per cent of capex of such facilities goes towards electrical systems and 65 per cent of operating cost is on account of electricity consumption. It takes between Rs 60-70 crore to set up one MW of data centre capacity in India.

Companies like Google have announced major data centre-related investments in India, but that has further raised concerns about how the country would manage its overall energy needs as such data centres demand resources like land, energy and water.

India’s data centre market is currently estimated to be worth $10 billion, with around $1.2 billion revenue generated in FY24, according to a recent report by Anarock. As per real estate firm JLL, India is expected to add 795 MW of new capacity by 2027, taking the total capacity to 1.8 GW.