Cloud computing allows storage of data and access to software on a pay-per-use model, helping companies to cut costs as they do not have to invest in infrastructure.
Major cloud service providers include Google, Amazon and Microsoft, who store the data of clients on servers across the globe.
While companies are adopting the new technology, the report titled 'The Indian Cloud Revolution' by CII, KPMG and Amarchand Mangaldas & Shroff suggests that cloud-based services can be leveraged by the government to launch e-governance initiatives quicker at lower overhead costs.
"A common cloud platform will also enable local governments and other public agencies to adopt e-governance for better citizen services, without requiring the setting up of significant IT infrastructure," it added.
However, cloud computing also represents a "new set of opportunities and challenges for law enforcement agencies" as jurisdiction over data in the cloud has been a cause of concern for regulators globally.
"In order to reap benefits of the cloud, the government needs plan its cloud adoption efforts...the Indian government should come up with a policy giving direction to its agencies to adopt cloud as well as to the cloud service providers inclined towards providing services to government," it said.
The government also needs to establish a nodal agency, which would define the standards for procurement and usage of cloud technologies by government agencies, the report added.
The report suggested that the policy should reconcile the most suitable mechanism to enable law enforcement agencies' to collect and analyse personal and electronic data as per the existing laws.
The manner of access, format of storing and providing information, retention period, content regulation and regular reporting should also be considered within such policy, it added.
The Indian government has set-up committee to recommend framework for cloud computing services under chairmanship of Infosys' Executive Co-Chairman S Gopalakrishnan.
"The committee will suggest a framework to promote cloud computing service in and from the country," Indian Computer Emergency Response Team Director Gulshan Rai, also member of the committee, told PTI.
According to Zinnov Consulting, the Indian cloud market stood at $912 million in 2011.
Infrastructure development will also be an important factor that would require government participation in areas like providing land, road connectivity and power to establish India as a data management hub.
"In addition, special financial provisions in terms of loans, tax incentives and land should be made available by the Indian Government for the private players who wish to build infrastructure for cloud computing," the report said.
Globally, the adoption of cloud has increased over the years and is growing at a rapid pace.
"Cloud can drive the inclusive growth agenda by providing platform to scale the reach of education, healthcare, financial services, entrepreneurship and governance among other areas," CII Director General Chandrajit Banerjee said.
Currently, India lags behind developed countries in terms of established data centers operating in the country.
"Economic benefits of having data management centers in the country are huge and the cloud policy will have to provide a clear vision to enable such an outcome," he said.
Also, existing regulators like Reserve Bank of India, Telecom Regulatory Authority of India Insurance Regulatory Development Authority and Securities Exchange Board of India will have to be directed to develop guidelines keeping in mind how the cloud can potentially affect the entities they regulate, the report added.