As large enterprises, small- and medium-sized businesses, and start-ups shift from legacy physical servers to scalable cloud platforms, data centres are emerging as the foundation of the digital economy. This transition is delivering greater speed, agility and innovation while optimising IT operations. With the country crossing the 1.3 GW data centre capacity milestone in May 2025, the combined strength of robust facilities, extensive fibre connectivity and reinforced cybersecurity frameworks is reshaping India’s technology landscape.
According to tele.net research, India’s data centre sector is set for significant expansion, with projected capacity additions exceeding 7 GW over the next decade, marking a critical change in the country’s digital infrastructure development. Further, about 3.4 GW of data centre capacity is expected to be added by 2030, with most of this already under construction. Beyond 2030, a further 3.8 GW capacity is anticipated, largely in early planning. This trajectory reflects not only market demand but also a broader shift in how digital infrastructure supports national development priorities.
Key drivers of growth
India’s data centre growth is being propelled by the proliferation of connected devices across industries, homes and cities, which generates massive volumes of data requiring storage and processing; the nationwide roll-out of high speed 5G that is enabling applications demanding ultra-low latency and high bandwidth; government-led smart city initiatives that rely on data analytics and real-time processing; evolving regulatory requirements, including data localisation mandates that keep sensitive data within India’s borders and drive domestic capacity; and the rise of artificial intelligence (AI) and real-time analytics, where inferencing and machine learning workloads require processing power close to end-users to deliver instantaneous results.
From traditional to hyperscale
India’s data centre landscape has evolved from enterprise-owned facilities to sophisticated hyperscale operations. Four primary hubs have emerged over time, namely, Mumbai, Chennai, Bengaluru and the Delhi National Capital Region (NCR), each strategically positioned to leverage strong infrastructure and proximity to undersea cable landing stations.
The Mumbai Metropolitan Region, encompassing Mumbai and Navi Mumbai, remains India’s data centre hub, holding about 45 per cent of operational capacity. Chennai ranks second at around 20 per cent, benefiting from proximity to Southeast Asia and strong regional connectivity. Beyond these hubs, Delhi NCR, Bengaluru, Pune and Hyderabad are gaining prominence, driven by tech-savvy ecosystems and rising enterprise data demand.
Regulatory support
The Digital Personal Data Protection Act, 2023 has acted as a game changer for this industry. Further, in Union Budget 2022-23, the government provided infrastructure status to data centres, enabling players to gain access to long-tenor debt at competitive rates as well as foreign funding through the external commercial borrowing route.
In addition, some state governments have special incentives, such as the provision of land at subsidised costs, power subsidies, exemptions on stamp duty and other concessions to boost AI investments. Moreover, as a part of Union Budget 2025-26, the government’s proposal to set up a centre of excellence in AI for education, along with the BharatNet project to provide broadband connectivity to all gram panchayats and a deep-tech fund of funds to provide access to skilled professionals in AI, cybersecurity and cloud computing, complements the strong growth prospects for the sector.
Edge data centres
A key shift is the rise of edge data centres, which are redefining how digital services reach end-users. Unlike centralised facilities, edge computing brings processing closer to users through smaller and efficient sites in Tier II and III cities. Edge data centres currently account for less than 1 per cent of India’s total data centre capacity (co-location). According to estimates by ICRA, India’s edge data centre capacity is set to triple, rising from 60-70 MW in 2024 to 200-210 MW by 2027, driven by the proliferation of emerging technologies.
AI and data centres
AI has the potential to transform every single category, from conversational interfaces to precision farming and everything in between.
In parallel with AI development, there is a need for brawn. AI requires sophisticated algorithm implementation to function off the graphics processing units’ (GPUs) muscle power, which is referred to as deep learning. Furthermore, most of the GPUs available in the market are imported, which strategically weakens our economy. Here, GPU-as-a-service is an exciting prospect for the use of GPU resources in the country, providing the option of paying for high-powered computing on a lease basis instead of purchasing it. Such models can fuel innovation within start-ups and research labs, boosting innovation across global studies focused on AI by negating the initial hefty investments in capital infrastructure. However, building a robust infrastructure backbone remains a work in progress. Semiconductors and the IndiaAI Mission policies will pave the way for tangible progress.
Modular data centres
Another key trend is the growth of modular data centres. In 2024, India’s modular data centre market was valued at $1.07 billion. According to the International Market Analysis Research and Consulting Group, it is forecasted to expand at a CAGR of 13.8 per cent between 2025 and 2033, reaching $3.44 billion by 2033. This surge will be driven by India’s accelerating digital transformation, as organisations across sectors embrace cloud migration, data modernisation, edge computing and sustainability initiatives.
The modular concept refers to the design and deployment of infrastructure in self-contained, prefabricated units that can be assembled quickly and scaled efficiently. These modules, often built off-site in controlled environments, integrate core components such as power, cooling and management systems. When ready, they are transported and installed on site, drastically reducing construction timelines and operational disruption. This approach mirrors the principles of modern manufacturing – being standardised, scalable and highly responsive to demand.
One of the key advantages of modular infrastructure is the acceleration of deployment timelines. Prefabricated modules can reduce roll-out durations by up to 50 per cent, compared to traditional construction approaches. The use of standardised components and repeatable designs streamlines procurement, shortens lead times and facilitates more accurate financial forecasting. Modular infrastructure supports sustainability efforts by reducing material waste, optimising energy consumption through integrated systems and enabling easier maintenance and retrofitting over time.
Key challenges
Despite the growth in data centres, the industry faces certain challenges, including power grid reliability issues, with frequent outages in some regions. The shift towards renewable energy sources presents both opportunities and challenges in grid stability. Proximity to power sources and network infrastructure is crucial, limiting viable locations. Complex regulations and multiple clearances often delay projects. Further, while major cities have good connectivity, many Tier II and III cities lack robust fibre optic networks. Lastly, there is a significant shortage of skilled professionals in data centre operations, cybersecurity and cloud technologies.
Upcoming opportunities
Technology solutions being offered must not only meet current needs but also be aligned with future road maps. Today, providers are preparing designs for rapid shifts in network standards. Data centre service providers and internal teams must prepare their infrastructure and solutions for this rapid technological shift. Multicloud tenancy, connectivity, sustainability practices and partnerships with hyperscalers are also being explored. Support models, service level agreements and the ability of business partners to leverage selected services are critical. Over the past three years, digitalisation has advanced significantly. Within the next couple of years, approximately 85-90 per cent of applications are expected to either be software-as-a-service (SaaS)-based, cloud-hosted or completely transformed from on-premises to cloud-native. This shift will open the doors for data centre providers and hyperscalers to prepare for new workloads.
Going forward, the biggest opportunity for growth lies in transitioning from a basic provider-consumer relationship to a true partnership. Customers increasingly expect faster services and shorter onboarding cycles, while flexibility, scalability, location accessibility and coverage remain fundamental requirements. Emerging opportunities include enhancing cybersecurity, where data centre service providers, who serve hundreds of partners, can leverage aggregated insights to develop automation and efficiency through agentic AI solutions. These can be shared with prospective customers to add value.
Carbon credits are another emerging area. If a partner provides green solutions, customers may benefit through transferred or shared carbon credits. Cost-sharing must include benefit-sharing as well. If service providers achieve efficiencies or exceed earnings targets, customers expect better services, reduced prices or added value. Organisations often worry about the fate of existing infrastructure when moving to hosted or cloud services. If legacy investments can still offer value, it creates a win-win situation.
Outlook
India’s data centre industry is experiencing rapid growth. The proliferation of internet of things devices and 5G networks will drive the deployment of edge data centres. Future data centres in India will increasingly focus on sustainability. The adoption of renewable energy sources, advanced cooling technologies such as liquid immersion cooling and AI-driven energy management systems will become standard.
To address the skill gap, industry-academia partnerships will intensify. Virtual reality-based training programmes, apprenticeship schemes and specialised data centre management courses will emerge, creating a robust talent pipeline. Policy momentum and state-level incentives will continue to attract long-tenor capital, while modular, prefabricated builds will shorten time-to-market and de-risk execution. As enterprises move applications to SaaS, cloud-hosted or cloud-native models, providers that pair multicloud connectivity with clear benefit-sharing will lead the next wave of growth.
