The outbreak of the Covid-19 pandemic has been a blessing in disguise for India’s rapidly evolving data centre space. The shift to a work-from-home arrangement and the need to ensure business continuity prompted government and private enterprises to turn to data centres. The government has realised the importance of data centres in today’s world and has recently released a draft data centre policy. The government’s focus on the data centre space, coupled with the willingness of enterprises to enable digital transformation, has created significant opportunities for data centre companies, telcos, towercos and other key stakeholders in the telecom sector.
A look at the evolving data centre segment in India and the emerging opportunities in this space…
Key demand drivers
There are several factors driving the rise in data centre adoption. Rapid digitalisation, a widening digital customer base, improving technology infrastructure and increasing internet penetration have given a strong impetus to the Indian data centre space. The growing adoption of cutting-edge technologies such as big data analytics, internet of things (IoT), artificial intelligence (AI), automation and cloud computing across industries has further increased the demand for data storage and processing. Moreover, the rise in the number of smart devices, along with increasing data consumption, has been a key contributing factor. The Covid-19 pandemic, which facilitated the transition to the remote working model, has amplified the role of data centres to a whole new level. As per JLL, India’s data centre capacity is expected to increase from 375 MW in the first half of 2020 to 1,078 MW in 2025. In terms of cities, Mumbai is expected to witness the highest capacity addition of around 360 MW, followed by Chennai with a capacity addition of 134 MW.
Impact of Covid-19
The onset of the Covid-19 pandemic deeply impacted the data centre industry as most organisations shifted to the digital mode of working, resulting in a surge in demand for data centre services. Immediately after India went into lockdown due to Covid-19, there was a 25-35 per cent increase in data centre capacity usage as companies began to upgrade their digital infrastructure to cope with the new work culture. Further, data centres witnessed a 14 per cent rise in daily data consumption from an average of 270 petabytes (PB) to 308 PB during the week ended March 22, 2020. The total additional power supply in data centres witnessed an increase of 8 per cent in the first half of 2020, taking India’s total co-location capacity to 375 MW. The period also saw a supply addition of 27 MW, which was equivalent to 56 per cent of the total supply addition seen in 2019 (48 MW).
Among regions, Mumbai continued its lead with a supply addition of 19 MW, followed by Bengaluru at 5 MW and the National Capital Region (NCR) at 3 MW. In the future, too, Mumbai is expected to see the highest capacity addition as it continues to be the preferred choice for large cloud players because of its infrastructure advantage. Chennai is also proving to be an attractive destination due to the presence of submarine cable landing stations and low development costs. Going forward, CRISIL predicts that the Indian data centre industry is expected to witness an annual growth rate of 25-30 per cent to reach $4.5 billion-$5 billion by 2025. The Covid-19 pandemic has been one of the key drivers for this growth.
Overall, data centres played a critical role in keeping businesses online during the pandemic. Since all remote-working applications and collaboration tools being used today are ultimately powered by data centres, they are indispensable to the digital economy.
Policy and regulatory impetus
The government has been taking initiatives to propel growth in the Indian data centre space. One of the major steps in this direction has been the promotion of data localisation. To this end, the Reserve Bank of India (RBI) issued a directive on the Storage of Payment System Data in 2018, under which it ordered all payment providers to store data in India to ensure better monitoring and unrestricted supervisory access. The other steps include the release of the draft E-commerce Policy, 2019, which proposes a detailed framework for looking into key issues such as data processing, infrastructure, regulations and digital economy; and the Personal Data Protection Bill, 2019, which prioritises local data storage and is expected to enhance data centre demand.
Even before the outbreak of the Covid-19 pandemic in February 2020, the finance minister announced that the government plans to help the private sector build data centre parks throughout the country. A recent step in this direction has been the release of the draft data centre policy by the Ministry of Electronics and Information Technology. The draft policy states that the government will work to provide infrastructure status to the data centre sector, bringing it at par with other sectors like railways, roads and power. This status will help data centres avail of long-term credit from domestic and international lenders on easier terms and attract investments. The policy also aims to simplify the clearance process for setting up data centres in the country.
Apart from the central government, the state governments are attracting FDI for data centres by offering tax incentives. Among states, Maharashtra, Telangana and Tamil Nadu were the first to release state-specific incentives for the data centre segment. Several other states have now started offering, or are planing to offer, incentives to data centres in the coming years.
Over the past two years, the rising level of digitalisation and the adoption of cutting-edge technologies have made the Indian data centre space attractive for global and domestic investors. During the period, companies such as Oracle, Google Cloud, Amazon Web Services, NTT Limited, CtlrS, STT Global Data Centres India Private Limited and Yotta Infrastructure have invested in data centres across the country. Oracle has set up a new data centre in Hyderabad, its second in India. Meanwhile, Google Cloud has established two cloud regions in the country. Further, NTT Limited and STT have set up data centres in Mumbai (Chandivali) and Bengaluru respectively. Recently, Yotta Infrastructure, the Hiranandani Group’s data centre arm, received approvals from the Uttar Pradesh government to set up a 20 acre hyperscale data centre park in the Greater Noida region at an estimated cost of Rs 60 billion-Rs 70 billion. The investment by Yotta Infrastructure will help establish the first hyperscale data centre facility in the NCR. Earlier, Yotta had set up the largest Tier IV data centre in India, situated in Panvel.
All telecom stakeholders, including telcos and towercos, have started leveraging opportunities in the rapidly expanding data centre space. Among telcos, Bharti Airtel’s data centre arm Nxtra Data Limited has a nationwide portfolio of 10 large data centres and has been offering data centre services to leading Indian and global enterprises, hyperscale providers, start-ups, small and medium enterprises, and the government. It recently signed an MoU with the Maharashtra Industrial Development Corporation for setting up two new data centre campuses in Mumbai and Pune. Further, in 2019, Reliance Jio and Microsoft entered into a 10-year partnership to build cloud data centres across India. While the total number of data centres to be installed is currently unknown, the first two are being set up in the states of Gujarat and Maharashtra.
Another growth avenue for both telcos and towercos is edge data centres, which are slowly gaining traction owing to the proliferation of several low latency and high throughput applications that require edge computing technology. These edge data centres are small, regional, cost-effective, automated, micro-modular data sites that can power high speed computing.
All three private telcos in the country are exploiting the edge opportunity. Vodafone Idea is reported to have the largest number of edge cloud deployments in the country. The operator’s enterprise arm is expanding its edge data centre outreach to 200 more locations. Recently, the operator launched a new platform under its Open Universal Hybrid Cloud, powered by IBM and Red Hat. The platform enables new distributed edge computing capabilities that can seamlessly blend the network and IT functions.
Further, Airtel’s data centre arm Nxtra is operating more than 120 edge data centres and providing customers with co-location services, cloud infrastructure, managed hosting, data backup, disaster recovery, and remote infrastructure management facilities. Reliance Jio is also betting big on edge computing for seamless connectivity. In August 2019, Jio announced a host of digital services, including an edge computing platform. The operator has partnered with Cisco to deploy a multi-access edge computing for optimisation and to enhance video experience over the network by developing a mobile content delivery network.
Edge data centres present an attractive revenue generating opportunity for towercos. Towercos have certain strengths such as a vast fibre footprint, which gives them an edge in the data centre business. Fibre connectivity is a critical component of these centres. Thus, the fibre infrastructure owned by towercos can be used to establish data centres. Further, telecom tower sites have a steady power supply, ready access to fibre backhaul connectivity and the requisite real estate. They are also located at the network edge. Often, there is enough space at the base of towers, which is an ideal place to install data centres. By deploying edge data centres at their sites, towercos can onboard customers with stringent latency requirements such as content delivery network providers and cloud providers, which support edge-specific applications.
Challenges and the way forward
Since the Covid-19 pandemic has significantly altered work scenarios and created a new normal, the need for data storage is likely to grow stronger in the coming years, driving up demand for data centres. Further, as India enters the 5G era and technologies such as AI, IoT, machine learning, big data and cloud computing become mainstream, edge data centres are expected to gain traction. According to CBRE, cities such as Kolkata, Pune, Gurugram, Kochi and Jaipur are likely to witness the emergence of edge data centres during 2021-23 owing to their ability to service specific geographic zones.
Net, net, the Indian data centre space seems to be brimming with opportunities. While the unavailability of adequate power supply, the capital- and technology-intensive nature of data centres, and the lack of a skilled workforce to manage multiple hyperscale projects continue to impede their growth, relevant policy measures can help address these challenges. The recently released draft data centre policy can be seen as a step towards addressing these issues and introducing incentives to drive growth in the segment.
By Kuhu Singh Abbhi