According to ICRA, India’s data centre industry is witnessing significant growth, driven by increasing internet and data consumption, as well as data localisation efforts. Rapid digitisation and a supportive regulatory framework are expected to further boost demand for data centres in the country.
ICRA projects that India’s operational data centre capacity will rise from approximately 1,150 megawatts (MW) in December 2024 to 2,000-2,100 MW by March 2027, requiring an estimated Rs 400-450 billion in investments over 2025-26 and 2026-27. Additionally, both established data centre operators and new entrants from the past 3-4 years have a development pipeline of 3.0-3.5 gigawatt (GW), slated for delivery over the next 7-10 years, with investments amounting to Rs 2.0-2.3 trillion.
The rapid digital transformation in India is being fuelled by increasing broadband and mobile internet penetration, the government’s Digital India initiatives, the accelerated adoption of cloud computing, artificial intelligence (AI), and 5G, along with the expanding influence of social media, e-commerce, gaming, and over-the-top (OTT) platforms.
Key policy measures, such as the Digital Personal Data Protection Bill, infrastructure status for data centres, government incentives, and enhanced connectivity projects—including BharatNet expansion, the Deeptech Fund of Funds, and the push for domestic manufacturing—will further drive sector growth.
Further, the Union Budget 2025-26 includes several initiatives that align with the strong growth outlook for the data centre sector. These include a proposed Centre of Excellence (CoE) in AI for education, expansion of BharatNet to connect all gram panchayats with broadband, and the Deeptech Fund of Funds, which will provide access to skilled professionals in AI, cybersecurity, and cloud computing.
When selecting locations, data centre operators prioritise landing stations, fibre connectivity, uninterrupted power supply, proximity to tenant headquarters, and disaster resilience. Mumbai and Chennai, with the highest number of landing stations, are prime choices for data centre investments, with Mumbai emerging as the preferred destination.
Approximately 75 per cent of upcoming capacity over the next three years will be concentrated in Mumbai, Chennai, and Hyderabad. ICRA anticipates 18-20 per cent year-on-year revenue growth for India’s top five data centre players in 2025-26, who collectively account for 75-80 per cent of the industry’s revenue and operational capacity.
Operating margins are expected to remain strong at 40-41 per cent, though the return on capital employed (RoCE) may be modest due to continuous capital expenditure, as new facilities scale up gradually.
