Data Centres will lead to precarious water situation in and around Hyderabad- EAS Sarma

The total capacity of data centres being set up by all companies in Hyderabad district is 5,000 MW

It generates highly toxic pollution that adversely affects people’s health

Diversion in Hyderabad district for data centres is far too simplistic

CAG’s report of March 2022 on land

Failure to Account for Indirect Multiplier Effects and Digital Infrastructure Value

CAG’s performance audit reports should apprise the legislature of the true social costs and social benefits of data centres

E A S Sarma, Former Secretary to the Government of India mailed a letter on October 6 in a well-structured representation to the Comptroller and Auditor General (CAG) regarding the land allotment to hyperscale data centers in Telangana.

“Please read his letter in full in the following paras.”

Dear Shri Sanjay Murthy,

Audit reports, especially performance audit reports, on the finances of the Union and the States and their performance, prepared by the office of the CAG and placed before the Parliament and the State legislatures, strengthen legislative oversight on the executive in so far as as the management of public resources and overall governance are concerned.

It is important that the role of the CAG, as envisaged in Article 149 of the Constitution, keeps in step with the changes in the role of the State vis-a-vis the private sector, especially in relation to the allocation of resources in favour of the latter.

In this connection, I refer to a statement made by your office on the subject as follows:

“The role of audit has to change to respond to what our principal clients, Parliament and the public want. They want to know how public resources are being spent and, in exchange, what benefits are being derived. Parliament desires that the operations and programmes carried out in the public sector organisations are effective, efficient and economic. The Public Accounts Committee strongly supports the examination of such operations and programmes to ensure that the value for money is being achieve” (https://cag.org.bd/storage/app/media/Performance%20Audit%20Manual.pdf)

While going through the audit reports of CAG on some States, I find that there is need for CAG functionaries not to restrict their audit to mere government transactions in a simplistic manner but to evaluate them in terms of the value obtained by the society in exchange for the resources allotted by the State in favour of private entities, as it is that value that the legislature would expect the CAG to assess and place before it.

By way of an example, I cite a paragraph of CAG’s audit report on Telangana in March 2022, with specific reference to diversion of industrial land at Hyderabad Pharma City to foreign companies such as Amazon for setting up AI/ Data Centres, which reads as follows: 

“Allotment of land to an unrelated industrial unit at Hyderabad Pharma City-

The NIMZ Guidelines stipulated that the land should be allotted and utilised only for the specified purposes as per the master plan and time. TSIIC proposed (January 2016) the NIMZ for Hyderabad Pharma City (HPC) as a cluster of pharmaceutical industries.

However, GoTS/ TSIIC made (January 2020) the first allotment of 48.01 acres of land in the HPC to M/s Amazon Data Services India Private Limited (ADSIPL) for the establishment of a data centre in five phases. TSIIC also executed (February 2020) the sale-deed allowing utilisation of the land for the intended purpose for 20 years from the date of the sale deed instead of from the date of completion of construction of each phase. Audit observed that the allotment of land in the HPC for the establishment of a ‘data centre’ was a deviation from the purpose for which the HPC was proposed. The target of generation of direct employment for 1.66 lakh people at the HPC was also jeopardised since the employment potential of a data centre was very minimal. Further, by executing the sale deed TSIIC lost the remedy of resumption of the premises in the event of nonimplementation of the unit”

It is certainly objectionable for the government to divert land originally allocated for the pharma industry, which is expected to generate employment for 1.66 lakh people, in favour of a data centre, the employment potential of which is going to be marginal. The CAG report rightly flags that issue. However, diverting land from pharma units to data centres, or for that matter, diverting agricultural land in the first instance for industrial use, has far wider societal implications than the above, that need to be analysed by the CAG and the legislature suitably apprised.

In the first instance, the pharma industry is not a paragon of virtue. It generates highly toxic pollution that adversely affects people’s health, reducing their productivity, adding enormously to the public expenditure on health. The Telangana government gives fairly large concessions to pharma units at the cost of the public exchequer. The employment potentenial of 1.66 lakhs expected from the pharma units is more a wish than a commitment. The safety track record of pharma industry in Telangana is anything but satisfactory.

Diverting the land thus allotted initially to pharma industry to data centres has far larger implications, compounding the kind of problems cited above.

Data centres are massive consumers of electricity. Amazon is setting up 1,200 MW of data centres in Hyderabad district. The total data centre capacity being set up by all companies in Hyderabad district is 5,000 MW, which is comparable to the total power needs of the whole of Hyderabad district. The existing power generation facilities in Telangana are inadequate for this. The State is therefore required to invest on at least 1.3 times 5,000 MW and the matching transmission facilities. Such an investment will exceed Rs 65,000 Crores. Since Telangana is offering cheap electricity to data centres, it will necessarily have to raise the required finances by taxing electricity consumers or the people or both.

Data centres consume large quantities of water for cooling, whereas, the Hyderabad region where they are being set up, has overall water availability of only 600 MGD against a demand of 750 MGD, which indicates serious water scarcity.  The water requirement of 5,000 MW of data centre capacity will be more than 43 MGD, which will accentuate the already precarious water situation in and around Hyderabad.

The State gives concessions totalling Rs 12 crores per MW of data centre capacity, whereas the Centre has already committed Rs 95 Crores per MW by way of an open-ended “tax holiday” till 2047. The cumulative subventions thus given to 5,000 MW of data centre capacity will be Rs. 5,35,000 Crores!

The market value of land in the Hyderabad region, as discovered in an auction conducted by the Telengana government in recent times, is Rs 269 Crores per acre, whereas Amazon is getting 48 acres for a pittance. The total extent of land being handed over to 5,000 MW data centres is more than 650 acres. The indirect subsidy given on land will therefore run into several thousands of crores of rupees.

The Telangana data centre policy (https://f.datasrvr.com/fr1/022/56297/Telangana-Data-Centres-Policy.pdf), besides offering a slew of concessions, also offers relaxations in the application of pollution control laws and labour legislations, which would adversely impact the health of the people and the welfare of workers.

What I have indicated above about data centres has great significance for the Parliament and the State legislature, which your office should analyse comprehensively and apprise them, as it is your office alone under the Constitution that can inform them of such far reaching implications.

For all the massive subventions given to 5,000 MW data centre capacity, and the relaxations being offered in terms of pollution control regulations and labour laws, what do the people of Telangana get in return? Artificial Intelligence, as its name suggests, replaces human beings to a large extent and the employment opportunities provided by those data centres may not be in excess of a few thousand out of which employment available for local youth may be largely in terms of menial jobs.

I feel that, instead of making a cursary reference to lands in Hyderabad district being diverted from pharma industry to data centres, the office of the CAG has the responsibility of providing a more substantive evluation on the above lines for the benefit of the Parliament and the State legislature.

Regards,

Yours sincerely,

E A S Sarma – Visakhapatnam. 6th October 2026– 14-40-4/1 Gokhale Road, Maharanipeta, Visakhapatnam 530002, Mobile: 91-9866021646, Email: eassarma@gmail.com Website: http://eassarma.in

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