The evolution of data centres can be traced back to the dot-com boom era, though they have recently gained considerable prominence in India. The rapid growth of the data centre market has been fuelled by a massive spurt in data consumption and data generation by new-age start-ups and enterprises undergoing digital transformation. The Covid-19 outbreak further amplified the role of data centres and provided an unexpected tailwind to the industry. Moreover, the launch of 5G services and real-time applications will escalate the need for data centres in the country.
A look at the key trends and recent developments in the sector…
Market overview
Asia is expected to account for half of the global data centre market by 2025, and India aims to capture the majority of this share. As per industry reports, the Indian data centre market was valued at $4.35 billion in 2021 and is projected to reach $10.09 billion by 2027, growing at a compound annual growth rate of 15 per cent during 2022-27.
India has many important intercontinental submarine cables connecting it to countries in Asia, Africa and Europe. Coastal cities are leading the market, owing to the dense, wet cable ecosystem offering the best global latencies. The majority of the colocation facilities are located in or around Mumbai, which alone accounted for 45 per cent of the country’s total capacity and had the highest number of cable landings as of February 2022. Besides, Chennai has emerged as an alternative location due to its well-established manufacturing base, lower set-up costs and strategic location. Kolkata is expected to get a new cable landing station in the next few years and emerge as a key site.
Key trends
Server virtualisation
Data centre operators are migrating to software-defined data centres (SDDCs) to reduce infrastructure burdens. SDDCs use virtualisation technologies to recreate the computing power and storage of data centres in software form. This permits data centres to host multiple users on a single server, and allows scalability.
Green data centres
According to the Storage Networking Industry Association, energy consumption is one of the most expensive aspects of data centres. Moreover, the resultant carbon dioxide emissions are comparable to those of the aviation industry. To maximise energy efficiency and minimise environmental impact, industry players are moving towards green or sustainable data centres, the infrastructure of which is modified with technologies such as cooling systems, e-waste recycling and sustainable computer processing software.
Hyperscale data centres
Hyperscale data centres are being built to fulfil the massive surge in data demands. These facilities have thousands of servers and can expand or contract based on the current business needs. Giant companies such as Amazon, Google and Microsoft use these facilities to draw on their processing power to deliver key services to customers globally.
Data Centre-as-a-Service
Data Centre as a Service is a product that provides clients remote access to a data centre and its capabilities. Using this, businesses can solve logistical and budgetary problems associated with on-site data centres, and offload the hosting and management of non-mission-critical applications. Leading global data centre infrastructure suppliers are investing heavily in such consumption-based, pay-per-use facilities.
AI and automation
The data centre market is registering increased investments in the automation of infrastructure and incorporation of artificial intelligence (AI). Operators can use AI services to manage resources efficiently and execute enhanced management practices, such as scheduling power usage at peak hours and regulating bandwidth. Automation is also set to play a pivotal role in the industry, as it promises to enable greater productivity and minimise manual intervention.
Demand drivers
The key factors driving data centre adoption include an expanding digital customer base, improving technology infrastructure and increasing internet penetration. Moreover, the growing adoption of next-generation technologies such as internet of things, cloud computing, big data analytics, AI and automation across enterprises is propelling the demand for data storage and processing. In the longer term, growth is expected to be fuelled by 5G and the metaverse, due to their incredibly high data requirements.
Government initiatives
The government’s initiatives, investments and industry-friendly regulations are lending a structural push to the data centre industry. In the Union Budget 2022, the government accorded “infrastructure” status to data centres to attract investment and facilitate long-term credit availability. Moreover, the Personal Data Protection Bill, passed in 2019, was a landmark legislation regulating the usage of data by organisations in India. However, the bill was withdrawn in August 2022, and the government is expected to soon release a fresh draft. Once implemented, the new Data Protection Bill is expected to be pivotal in the data centre market and dictate market volumes. Further, the Ministry of Electronics and Information Technology drafted a Data Centre Policy in November 2020 to benefit the data centre ecosystem and ensure sustainable and trusted data centre capacity in the country.
Besides, several state governments are bringing in policies and investments to provide power, land, connectivity infrastructure and fiscal and non-fiscal incentives specific to the data centre domain. For instance, the Uttar Pradesh government has notified its Data Centre Policy, 2021, which aims to develop a 250 MW data centre industry and attract investments worth Rs 200 billion. The state recently approved proposals to set up four data centre parks at an investment of over Rs 159.5 billion in the state. Karnataka, too, launched its data centre policy, consisting of attractive incentives and concessions, in April 2022, as it aims to develop a data centre industry of over 200 MW capacity in the state by 2025. Meanwhile, West Bengal launched its data centre policy in September 2021, which envisions developing a 400 MW data centre industry by 2025. Other states, including Maharashtra, Tamil Nadu, Telangana and Andhra Pradesh, have separate policies and provisions to govern and promote the data centre industry.
Private sector developments
Numerous international deals have materialised in recent times, reflecting the race among global players to capture a share in the Indian data centre market. For example, AdaniConneX, a joint venture (JV) between Adani Enterprises and Israel-based EdgeConneX, was established to build and operate a 1 GW network of hyperscale and edge location data centre capacity over the next decade. The Adani Group has also announced an investment of up to Rs 700 billion to build solar-powered data parks in Andhra Pradesh. Another JV between Web Werks and US-based Iron Mountain has been established to increase capacities across Web Werks’ existing markets in Pune, Delhi and Mumbai, and expand its presence to new markets across India. In September 2021, Bharti Airtel unveiled its data centre arm, Nxtra, which currently has the largest network of data centres in India. Reliance Jio has announced its plans to build a data centre in Uttar Pradesh at an investment of $950 million, while Yotta Infrastructure plans to invest Rs 900 million to set up 100 edge data centres over the next three to four years. Meanwhile, US-based Equinix Inc. expanded its presence in India with the $161 million acquisition of GPX India in September 2021.
Future outlook
As the data centre market is still emerging in India, it faces several challenges such as land shortage, power supply interruptions, supply chain delays and increasing competitive intensity. It also remains exposed to security and technological risks such as cyberattacks and data theft, despite high levels of security. Nonetheless, the industry has emerged as a favoured infrastructure asset class, globally. According to CRISIL, data centre capacity is estimated to reach 1,700-1,800 MW by 2025. Meanwhile, according to ICRA, data centre capacity expansion by both foreign and local firms is expected to add investments worth Rs 1.05 trillion-Rs 1.2 trillion over the next five years. Colocation investment is predicted to grow by 3-5 per cent. In terms of geography, Mumbai is expected to add nearly 300 MW by 2025, while Chennai, Hyderabad and Pune will together add around 400 MW.
India is well-positioned to become an Asia-Pacific data centre hub due to its strategic location and the availability of submarine cable landing infrastructure, green energy resources, land supply, skilled manpower and favourable legislation. The country’s data centre industry is already witnessing sizeable investment commitments from major domestic and international players, and the trend is expected to accelerate going forward.