Over the past few years, the Indian data centre market has evolved from an emerging market to a primary one, with an estimated capacity of over 700 MW. Being a large, stable democracy with increasing green energy investments, skilled manpower and low-cost locations for setting up data centres, India today is one of the most attractive markets for data centre players.
The major factors contributing to the increasing demand for data centres include data explosion and an increase in data consumption, new data privacy and data security laws, the Reserve Bank of India’s mandate on data localisation, a reduction in tariffs, and the adoption of technologies such as internet of things, 5G and artificial intelligence.
Given that India’s data centre capacity per million population is still very low compared to its peers in the Asia-Pacific (APAC) region, there is still high potential for further growth.
Increasing capacity
The Indian data centre market has been witnessing speedy growth. For instance, the estimated total operational capacity live in India stood at 722 MW as of end 2022, compared to 551 MW in 2021, indicating a supply addition of 171 MW during this period. This strong growth was led by the delivery of pre-committed supply to hyperscale cloud service providers. Hyperscalers account for half of the total occupancy, followed by banking and financial services (20 per cent), technology (11 per cent) and telecom (5 per cent).
The demand for data centres is in sync with the supply and has witnessed robust growth, with an estimated absorption of 161 MW during 2022 as against 119 MW during 2021.
Regional dynamics
Of the total 722 MW of capacity in the country, Mumbai accounts for 50 per cent share of inventory, with Chennai, Delhi-National Capital Region (NCR), Pune and Bengaluru at 12 per cent, 11 per cent, 10 per cent and 9 per cent respectively.
Mumbai is a popular location for data centres. Its location on the west coast of India makes it ideal for data centres to connect to global networks via submarine cables. Additionally, Mumbai has stable power supply and land available for the construction of data centres, making it an attractive location for operators. Moreover, the city is the financial capital of India, home to many major corporations and financial institutions, resulting in a significant demand for data centre services.
According to a recent study by Knight Frank, Mumbai has emerged as the third-largest data centre market in the APAC region, with a total capacity of 2,337 MW. As per the report, Mumbai has added over 328 MW of capacity, spurred by existing players and new market entrants.
Growth drivers
One of the reasons India has been experiencing a surge in the demand for data centres is the wave of digitalisation ushered in by the Covid-19 pandemic. The pandemic has changed the way companies learn, work and collaborate with each other. Further, the exponential increase in digital transactions due to a surge in unified payment interface adoption is driving the demand for data centres in India. Besides, an increased shift from on-premises solutions to colocation or cloud services, and a reverse roll-out from cloud to colocation, are further pushing the market for data centres in the country.
In addition, the countrywide 5G roll-out and a rise in the number of smart devices are leading to an explosion of data usage. The large amounts of data that 5G networks must process, store and distribute necessitate greater availability of data centres. Moreover, the growth of edge data centres will speed up further, as 5G networks require that data be processed closer to the user.
Government initiatives
The government, too, has been taking active steps to create a favourable environment for data centres in the country. In the Union Budget 2022, the government granted infrastructure status to data centres. The move aimed to facilitate easier access to institutional credit at lower rates for data centre companies, and attract foreign investments. Recently, the government also notified that data centres will be included in the Harmonized Master List of Infrastructure Subsectors through the insertion of a new item in the category of communication. As a result, data centres housed in dedicated/centralised buildings for storage and processing of digital data applications with a minimum capacity of 5 MW of IT load will be considered eligible for infrastructure status.
Further, the government has been actively promoting digitalisation across sectors, with the goal of providing internet connectivity to all villages and remote areas by 2025. These initiatives are expected to increase the rate of data production in the country and drive the growth of hyperscale data centres. Moreover, the innovative use of blockchain and new-age technology in the Covid era, digitalisation of land records, etc., have advanced the Digital India mission, thus necessitating a strong data centre infrastructure backbone.
Also, the Ministry of Power has recently released the Green Open Access Regulations, 2022, allowing locations with a connected load of 100 kW and above to source green power. This will enable edge data centres to adopt affordable and reliable renewable energy as their primary power source.
State governments, too, have released their own data centre policies, laying down guidelines for data centre infrastructure in their respective states. Karnataka has notified its data centre policy along with attractive incentives and concessions for investment in such units, as the government aims to attract about Rs 100 billion into the sector over the next five years. The cabinet granted Rs 1 billion to implement the Karnataka Data Centre Policy, 2022. The Uttar Pradesh government, too, approved amendments to its Data Centre Policy, 2021 to facilitate the opening of more data centres in the state.
Key challenges
Despite immense government support and rising private sector participation, certain challenges continue to hamper the growth of the industry. The key challenges faced by data centre operators include limited land availability in relevant micro-markets, and inadequate availability of power. Challenges with sourcing and availability of green power also act as roadblocks in meeting the rising needs of the industry. In addition, supply chain disruptions and the lack of skilled resources impact capacity additions. Climate change disruptions can also impact the working of data centres.
Future trends
India’s data centre industry is expected to add 678 MW of capacity by the end of 2025, leading to a doubling of capacity to approximately 1,400 MW. The expected supply addition will require 9.1 million sq. ft of real estate space, with an expected investment outlay of $4.8 billion by 2025. Mumbai and Chennai alone will account for 76 per cent of the new capacity addition. Mumbai’s additions will entail a demand of 4.6 million sq. ft, followed by Chennai at 1.9 million sq. ft and Delhi-NCR at 0.7 million sq. ft. In terms of investments, Mumbai will require $2.7 billion, with a major share of expansion expected in the Navi Mumbai region. Chennai will require $1.1 billion, while Delhi-NCR will need $0.6 billion. As per industry experts, owing to various regulatory approvals and variance in construction periods, a three to four-year time frame will be required for the capacity to become operational.
Nonetheless, India’s data centre industry outlook is positive. Exponential data generation and processing, spurred by an increasing array of smart devices, will fuel the industry, going forward. Further, high data download speeds will open up new business possibilities, leading to massive market growth. The increase in cloud adoption will also propel the industry’s growth in the coming years.
Net, net, the data centre sector has witnessed a remarkable acceleration in recent years, driven by the exponential growth in internet usage across areas such as commerce, social media, entertainment and cloud adoption. With data centres gaining prominence as an asset class in the country, investors are leveraging various strategies, such as mergers and acquisitions, joint ventures and land acquisitions, to tap into this sector.
Kuhu Singh Abbhi
