Unaise Urfi, Partner, KPMG in India
India is building up data centre facilities, which will create the infrastructure that will support the country’s trillion-dollar digital economy. For decades, the development of the data centre space had been limited to small, enterprise-owned server rooms; however, now it has become a top-level strategic priority for the country. A combination of factors has created conditions for an unprecedented build-out of data centre capacity in India, including the largest and most data-intensive mobile user base in the world, the roll-out of ubiquitous 5G, a government mandate for data sovereignty and the rapidly changing demands of artificial intelligence (AI). These factors are creating a massive demand for new data centre capacity.
The numbers are defining the size of the Indian data centre market. Projections of industry analysts forecast that the total installed power of India’s data centres will reach over 2 GW by 2026, from the current level of over 1 GW. This is a very significant build-out and industry analysts believe that India’s data centre capacity will grow fivefold by 2030 to over 8 GW. This growth is expected to generate over $30 billion in capital expenditure.
This is no simple or linear process of scaling up. There are two powerful, and at times conflicting, drivers of the build-out of India’s data centre capacity – a non-negotiable government policy directive for data sovereignty and the existential imperative of ensuring sustainable resources. Every player in the ecosystem of the data centre build-out, including hyperscale companies signing agreements for 200 MW, policymakers writing regulations for the electric grid, the enterprise chief information officer selecting their cloud service provider, and vendors designing the cooling systems, needs to navigate through tough waters to be successful in the coming decade.
The great build-out: Policy, capital and geography
The trigger: Data localisation
Data localisation is what is driving the boom in the development of data centres in India today. The DPDP Act of 2023, combined with existing and future-specific mandates from various sectors (for example, RBI and SEBI), have fundamentally changed the environment in which all parties operate. Data sovereignty is the new market driver and not just a buzzword.
The geography: Old markets and the new frontier
The battleground is currently concentrated in Mumbai and Chennai markets. These two cities account for over 70 per cent of the country’s capacity. The former is a financial hub and the latter is a landing station.
We are also seeing the rise of edge computing. To deliver low-latency content, such as 4K streaming, online gaming and internet of things, data must move closer to the consumer. This is driving operators to explore building smaller, modular data centres in Tier 2 and Tier 3 cities, creating a distributed national data infrastructure.
The fuel: A wall of capital
The $30 billion investment figure is not a projection. This build-out is being financed by long-term capital from institutional investors around the world. Sovereign wealth funds and private equity (PE) firms look at the Indian data centre market not as some kind of speculative real estate play, but as a core utility.
The new giant: AI changes all rules
The industry believed that it was hitting its stride in applying technologies to build for modern-day cloud storage and enterprise IT. It was hit by a new berg, which has entered the picture – the AI.
The revolution of AI is not just another workload. A GPU server rack for AI workload can consume five or six times as much power and would be dissipating just as much heat as a conventional server rack. We are moving from the world in which a 10 kW rack was high density, to what is now considered par for the course.
From direct-to-chip (D2C) cold plates to liquid nitrogen cooling tanks, suppliers are in a hurry to offer them. Operators need to weigh the strategic decision of building “AI-ready” centres, which will come with an enormous cost premium or risk being stuck in “legacy” facilities that are unable to service the next wave of demand. Industry estimates are that 50 per cent of the data centre capacity could be AI-related within 10 years, radically reshaping design and cost, but most importantly, energy demand.
The sustainability mandate: India’s $30 billion challenge
This brings us to the data centre’s most existential challenge – power and sustainability. This is where the goals of policymakers and operators need to align.
Three-pronged dilemma of power: Availability, cost and cleanliness
The grid in many parts of India, while improving, is still not at the 99.99999 per cent (“five nines”) reliability that data centres require. This has led to the industry’s “dirty secret” – reliance on diesel generator farms for backup power. A 100 MW hyperscale campus requires a backup power plant of its own, with colossal diesel storage. This is not just a massive operational expenditure and carbon liability; it is an environmental and regulatory dead end.
Policymakers are clamping down on emissions norms and the industry is desperate for an alternative. This opens up a huge opportunity for vendors in battery energy storage systems, solar, wind and green hydrogen fuel cells.
The green imperative
The green imperative is no longer a corporate social responsibility initiative; it is a core business and licence-to-operate necessity. Enterprises and hyperscalers have their own 100 per cent renewable energy goals; these US- and EU-based giants are now auditing their entire global supply chain and their co-location providers are at the top of the list.
The water stewardship crisis
The “P” in power usage effectiveness (PUE), has been the industry’s obsession for long. Also, water usage effectiveness (WUE) is just as critical. Cooling systems use huge volumes of water, especially legacy ones using evaporation; this needs to be modernised as soon as possible.
The unseen hurdles: Talent and time-lines
Beyond the concrete and steel, two unseen hurdles threaten to slow this revolution – people and permits.
- The talent gap: India has a world-leading IT workforce, although it does not have a world-class data centre workforce, at least not at the scale required. A modern data centre needs highly specialised mechanical and electrical engineers, heating, ventilation and air conditioning (HVAC) and cooling plant operators, cybersecurity experts in critical infrastructure, and data centre infrastructure management (DCIM) specialists. This skills gap is on both the spectrums – that is, blue and white collar – that policymakers and operators need to bridge through public-private partnership agreements in professional training and university-level programmes.
- The permitting jungle: Building a data centre is not like building an office. It requires a complex web of permits covering land allocation, environmental approvals, power, and building and fire safety codes. Policymakers who can create “single-window” clearance systems for data centres will give their states a competitive advantage.
The road ahead: A call to action for every stakeholder
India’s data centre revolution has reached a critical juncture. Success is not an entitlement; it must be created brick by brick by each player in the ecosystem.
- For policymakers: The DPDP Act has lit the fire and policies must clear the path ahead. The focus must be on grid modernisation and unveiling “single-window” clearance systems. Invest in skill development as a national priority; the people who will be running these facilities are as critical as the facilities themselves.
- For data centre operators and hyperscalers: This is no longer a land grab; this is a race for strategic procurement of power and water. Your next facility design needs to be modern and ready for tomorrow’s AI that is liquid-cooled and hyper-efficient from day zero. The critical strategy will be securing long-term renewable energy contracts and the biggest investment must be in training and retaining a world-class operations team.
- For enterprises: Cloud provider is part of your business, legal and sustainability strategy. Due diligence cannot stop at price per kW; power sources, PUE, WUE, physical security and regulatory compliance road maps of your partners require scrutiny. Any brand’s sustainability and legal standing are now inextricably linked to its infrastructure partners.
- For technology vendors: This is the golden age. A Big Bang of innovation is the need of the hour. We need cost-effective modular designs for the edge, breakthroughs in chip and immersion cooling and DCIM software, which is AI-powered and can automate and optimise the interplay of power, cooling and compute workloads.
This is a generational opportunity for India to build a digital infrastructure that is not only scalable but also sustainable and sovereign. It is more than an investment; it is a down payment on India’s digital future. In fact, the build-out is happening. The challenge now is to build it smart, green, and build it together.
