Economic Paradox of Ai: Balancing Digital Growth and Environmental Sustainability in India

Abstract Book of the 6th World Conference on Climate Change and Global Warming

Year: 2025

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Economic Paradox of Ai: Balancing Digital Growth and Environmental Sustainability in India

Shruti Goyal

ABSTRACT:

This study examines the economic paradox presented by artificial intelligence (AI) in India, where digital expansion collides with environmental constraints and climate commitments. As per a report by Cushman and Wakefield, India’s data centre market is projected to grow from US$ 4.5 billion in 2023 to an estimated US$ 11.6 billion by 2032. These give rise to associated resource demands—particularly energy and water—threaten to undermine the nation’s Nationally Determined Contributions under the Paris Agreement. A review of literature reveals that the data centres currently consume 0.5% of India’s electricity which is projected to reach 3% by 2030, while a single 1MW facility requires 26 million litres of water annually. These resource demands create unwanted distortions in the market including delayed retirement of coal power plants and increased water stress in technology hubs like Bengaluru, where data centres consume 8 million litres daily. We propose the idea of “digital degrowth” that optimizes resource allocation through selective, minimal, and mindful AI deployment. This approach recognizes that while the International Monetary Fund suggests AI’s economic benefits may outweigh environmental costs, this depends on strategic policy interventions. Our analysis supports location-specific policies leveraging India’s coastal geography for renewable energy integration and seawater cooling. We recommend progressive energy tariffs, tiered usage frameworks prioritizing essential applications, and public-private partnerships for sustainable infrastructure. This research contributes to economic theory by challenging growth-centric digital development models and demonstrating how targeted interventions can internalize environmental externalities while preserving AI’s socioeconomic benefits.

Keywords: Artificial Intelligence in India, Data Centre Sustainability, Environmental Economics, Climate Policy and Technology