Microsoft is set to enable in-country data processing for its Microsoft 365 Copilot in India by the end of 2025. This move, announced on Wednesday, November 5th, 2025, will allow Indian organizations using Microsoft 365 Copilot to have their AI interactions processed within the country's borders under normal operating conditions. India is among the first four countries to receive this capability, along with Australia, the United Kingdom, and Japan.
This initiative addresses critical data sovereignty concerns, particularly for government agencies and highly regulated industries operating in India. By keeping data processing within national boundaries, organizations gain enhanced governance, security, and regulatory compliance options, aligning with India's growing emphasis on data localization. Paul Lorimer, Corporate Vice President of Office 365 Enterprise and Cloud Engineering, stated that this move strengthens sovereign controls for Microsoft's AI-powered productivity suite.
The in-country processing capability covers prompts and responses from Microsoft 365 Copilot's large language models hosted on Azure OpenAI. This means that the AI interactions, including the ingestion of prompts, model inferences and responses, and associated telemetry, can be routed and executed inside India. Microsoft emphasized that regulations are at the heart of why it is making this offer. This initiative is designed to enable customers, particularly those in government and highly regulated industries, to access Microsoft 365 Copilot with an additional option for governance, security, and regulatory compliance.
In addition to enhanced security and compliance, the move promises improved performance through reduced latency, delivering faster response times for Indian users. Local data processing may have some marginal advantages in terms of the time data takes to travel from one place to another.
Microsoft plans to expand in-country processing to eleven additional countries in 2026, including Canada, Germany, Italy, Malaysia, Poland, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates, and the United States. This expansion demonstrates Microsoft's continued investment in meeting local compliance requirements across its global infrastructure. Microsoft currently offers in-country data residency to customers in 27 countries and maintains regional data residency within the European Union Data Boundary.
This announcement marks a shift from large tech firms' previous resistance to data localization mandates. Microsoft and other firms have significantly increased their data center footprint around the world, with India experiencing a surge of investments. As regulated industries, such as finance, have been required to keep data within Indian borders, data residency has transformed from a cumbersome requirement to a valuable asset for cloud and data center providers. India's data center capacity is expected to grow from the current 1.2 GW to about 8 GW by 2030, expanding at an annual rate of nearly 17%, driven by the country's rapid digital transformation.
Microsoft's expanded sovereign controls follow a recent revamp of its compliance framework, initiated after a legal dispute with Nayara Energy earlier this year. In July, Microsoft temporarily stopped providing services to the India-based refiner following EU sanctions over its Russian links. This incident prompted the refiner to sue the tech giant in the Delhi High Court.
The decision to offer in-country data processing for Microsoft 365 Copilot in India reflects Microsoft's commitment to customer flexibility and building customer trust. By providing customers with a choice regarding the location of AI data processing and residency, Microsoft aims to facilitate the broader adoption and deployment of Microsoft 365 Copilot.
