INDIA’S DATA CENTRE AMBITIONS

Source: CBRE

Disclaimer: Copyright infringement not intended.

Context

Given the data center sector's expansion in emerging economies, India may become a major player in the data centre market in the years to come. However, it may also face stiff competition from nations like Malaysia and Vietnam.

What are Data Centers?

Data centers are vital facilities designed to store, organize, and share digital information, forming the backbone of today's digital economy. They support a wide range of services, from cloud computing to Internet of Things (IoT) projects. These centers consist of interconnected computer servers and storage devices, ensuring reliable access to data for businesses, governments, and individuals. Key characteristics of modern data centers include scalability, robust security measures, and energy efficiency.

Rise of Data Centre Demand

India's economic expansion is closely tied to a surge in digital adoption across industries, driving massive data consumption. With strong foreign exchange reserves exceeding USD 622.5 billion (as of February 2024) and government investment in infrastructure, the country’s Gross Fixed Capital Formation (GFCF) reached a record 34.1% of GDP in FY2024. 

This highlights businesses' growing reliance on digital solutions, resulting in an increasing demand for robust data centre infrastructure to ensure scalability, security, and efficiency.

Indian data center market 

The Indian data center market is segmented into two major categories: captive and outsourced, which includes colocation and hosting. The captive data centers market is further bifurcated by type of IT infrastructure, for servers, storage, and enterprise networking

As of date, India boasts the highest leased data center capacity of 1-3 GW among other emerging markets, which also include Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Major tech giants such as Google, Microsoft, and Amazon have already set up their data centers in India.

India's data centre market is growing at a fast pace and is expected to grow from $4.35 billion in 2021 to $10.09 billion by 2027, as per CAGR of 15.07%. The total data centre stock is likely to reach ~1,370 MW by the end of 2024, up from ~1,030 MW in 2023 and thus offers massive opportunities for operators and investors.

As of 2022, India’s data center capacity stood at 637 MW, ranking it as the 13th largest data center market globally, with 138 data centers. By the end of 2025, 45 new data centers with a combined capacity of 1,015 MW and 13 million square feet of space are scheduled to be developed.

While major cities like Mumbai, Chennai, Delhi-NCR, Bangalore, and Hyderabad will see over 90% of new supply, untapped markets such as Kochi, Jaipur, and Visakhapatnam are emerging as promising hubs. State governments are incentivising investments through dedicated data centre policies, further enhancing growth prospects.

Government Support

To accelerate investment and data center expansion, the Indian government is formulating a comprehensive data center policy. Key provisions of this policy include:

• Incorporating data centers under the Essential Services Maintenance Act (ESMA).
• Establishing Data Centre Facilitation Units (DCFU).
• Creating Data Centre Economic Zones.
• Implementing a special category code for data centers under the National Building Code of India.
• The Indian government is planning to procure graphics processing units (GPUs) as part of its ambitious IndiaAI Mission. Launched at the GPAI Summit 2023, it aims to establish a computing capacity of over 10,000 GPUs and develop foundational AI models trained on datasets that encompass major Indian languages.

Key Growth Drivers of India's Data Centre Market

• AI Boom: Lots of data are generated, and this calls for well-equipped data centres with an improved storage and processing capacity.
• Support by Government: Indian government is advancing digital infrastructure, national connectivity, and reliable power access.  This forms a strong base for booming data centres.
• Cloud Adoption: Adoption of cloud solutions by industries and societies forms another key growth driver of demand for data centres.
• Policy support: With incentives and policies towards data centers, confidence of investors increases.
• PSUs are embracing digitization, increasing the scale of their data storage, and this becomes one of the contributors to the growth of the data centre market.
• The growth of social media and streaming platforms has increased the data volume, and thus big data centres have to be rolled out.
• Stricter data sovereignty regulations in Southeast Asia may give India a competitive advantage. 
• Data centers in tier-two and tier-three cities typically have lower land and construction costs compared to tier-one cities.

Challenges in the Data Center Industry

• Infrastructure Limitations: Reliable electricity and internet connections are critical for data center operations. However, gaps in infrastructure across many regions pose risks and increase operational costs for providers.
• High Costs: The significant upfront and ongoing operational expenses present hurdles, particularly for smaller enterprises. This highlights the need for more cost-effective cloud hosting options.
• Data Security: Protecting sensitive data is a top priority, requiring continuous investment in security systems to comply with stringent regulations.
• Environmental Concerns: Data centers are energy-intensive, contributing to carbon emissions and environmental degradation. There is an urgent need to adopt green energy solutions and energy-efficient technologies.
• Skilled Workforce Shortage: The industry suffers from a lack of skilled labor, necessitating focused educational programs to train professionals in data center management and emerging technologies.
• India faces competition from both emerging and developed markets in attracting data center investments. For instance:

• Johor Bahru in Malaysia has emerged as a preferred location for new data centers, offering lower costs compared to Singapore, including cheaper land and energy.
• Japan is providing subsidies to decentralize data center development, encouraging construction away from major urban centers like Tokyo and Osaka.

Way Forward

Cloud computing, edge computing, and AI solutions form the transformational backdrop in India's digital economy. The biggest challenge remains infrastructure limitations and cybersecurity threats. Effective proactive investments in robust infrastructure and security measures are the need of the hour.

This will involve strategic cooperation between data center companies, government agencies, and education institutions, hence contributing to the establishment of a resilient data infrastructure, which will foster economic growth and position India at the top of the global data center industry.

Sources: 

INDIANEXPRESS