Digital Backbone: Data centres emerge as a strategic infrastructure asset

Recently, there have been a slew of multi-billion-dollar investment announcements in the data centre space in India – be it from global hyperscalers, Indian conglomerates or centre and state governments. These statistics may trigger a fundamental question: Does India need so many data centres, and does it merit this scale of investment?

Industry projections suggest that the hype, indeed, is real. India’s data centre industry is experiencing transformative growth. With unprecedented investment, capacity expansion and infrastructure roll-outs, the country is not just scaling – it is positioning itself as a global data centre hub.

Currently, with almost 140 data centres, India is the world’s 13th largest market. And 45 new data centres – covering 31 million square feet and 2,070 MW of capacity – are expected by the end of 2025. Investment in the Indian data centre market is expected to grow at a compound annual growth rate (CAGR) of 14.6 per cent to reach $100 billion by 2027. Data centre IT load crossed 1 GW in 2024, and this demand is expected to grow sixfold by 2030, while some estimates put this growth at eightfold as well.

Let’s look at major demand drivers:

• Artificial intelligence (AI) growth: As India’s AI ecosystem matures over the next one to two years, AI and generative AI workloads – currently consuming around 35 per cent of data centre capacity, up from 15 per cent – are expected to become major drivers of infrastructure demand. AI applications will require always-on infrastructure to enable real-time decision-making and automation at scale.
• Unprecedented digital demand: Surging data consumption (with mobile data doubling to 70 GB per user by 2030), a $ 325 billion e-commerce market by 2030, rapid cloud adoption and sovereign cloud mandates are fuelling rapid expansion.
• Emergence of data centres as an infrastructure asset investment class: This will attract interest from real estate investment trust, private equity and pension funds. Availability of institutional capital is enabling rapid expansion, innovation and consolidation across the ecosystem.
• Data localisation norms: The government’s push for data localisation is driving demand. The Reserve Bank of India’s 2018 directive mandated that all payment data be stored within India. The Securities and Exchange Board of India’s 2023 mandate extended this requirement to stock exchanges, brokers, mutual funds, depositories and KYC agencies. The Digital Personal Data Protection Act of 2023 has added another layer of data localisation requirements across sectors.
• Policy interventions: The draft Data Centre Policy, IndiaAI Mission and state-led initiatives (such as Uttar Pradesh’s subsidies for $3.6 billion data centre investments) are fostering growth.
• Nation and state government initiatives and investments: Growing citizen demand for online services is expanding the scope and scale of e-governance projects. To address this demand, the National Informatics Centre has established advanced national data centres in Delhi, Pune, Hyderabad and Bhubaneswar, along with 37 smaller data centres in state capitals, forming India’s core e-governance Infrastructure. Many state governments are expanding this infrastructure with public-private partnerships to accelerate the digital empowerment initiatives.

India’s advantage

Demand alone does not build data centres; it is the market economics that attract the investments to build and operate a billion-dollar enterprise. India’s strategic advantages as compared to its global peers are:

• Proximity to fibre optic networks and global connectivity: India serves as a critical hub for global data transfers. The country hosts 17 international subsea cables, which land at 14 stations across five coastal cities: Mumbai, Chennai, Kochi, Tuticorin and Thiruvananthapuram, making these regions prime locations for large-scale data centre development.
• Global-local partnership model: Global hyperscalers are not starting from scratch; they increasingly depend on Indian partners for land acquisition, power supply, construction and regulatory compliance. In return, domestic players gain access to advanced AI and cloud technologies, fostering a collaborative global-local ecosystem that accelerates innovation and scalability.
• Strong economies of scale attracting investments: Data centre development costs in India average just $7 per watt, among the lowest globally.
• Power: Electricity costs are 20 per cent lower than in the US. India transitioned from a power-deficient to a power-sufficient status, reaching a total installed capacity of 452.69 GW by October 2024, with zero power deficit.
• Land availability: Streamlined processes with state governments’ support have led to reduced delays in the acquisition process.
• Skilled talent: Young workforce with advanced skillsets in AI, IT, cloud and data management, capable of handling advanced infrastructure and maintaining high global standards.

India’s data centre growth story will depend on addressing critical challenges around sustainability, water usage, energy availability, regulatory clarity and sector-specific compliance. Rising power demand and water scarcity pose significant environmental risks that operators must mitigate through renewable energy and advanced cooling solutions. Policy consistency and streamlined approvals will be essential to accelerate infrastructure rollout and attract global investment.

Industry players must also ensure resilience against cyber threats and meet stringent uptime requirements, especially for the banking, financial services and insurance, telecom and government sectors. Ultimately, scaling responsibly and sustainably will determine India’s ability to position itself as a global data centre powerhouse.