India is transitioning from a nascent data centre market to a regional industry hub, recording double-digit revenue and capacity growth. Surging 5G adoption, rapid digital transformation, technological advancements, a widening digital customer base and the rising number of smart devices are driving the demand for data centres. As per industry reports, the current total installed capacity across the country stands at around 1.2 GW and about 5 GW capacity is expected to be added by 2028. Mumbai continues to remain a relatively mature data centre market, hosting half of the data centre capacity of the country. Chennai, Bengaluru and the National Capital Region (NCR) are already relatively established markets, while Kolkata remains an emerging hub catering to the zonal data requirements of the region.
Over the past year, the sector witnessed a series of investments from both global and domestic players as they commenced the construction or operations of their data centres, including edge and hyperscale facilities. The growth is largely being supported by a favourable regulatory landscape and incentives offered by state governments. Being a power-intensive industry, the expansion of data centres has also necessitated a focus on optimising energy and water consumption, utilising green energy and reducing the overall carbon footprint.
A look at the regulatory environment, investment trends, green initiatives and the emergence of edge and hyperscale data centres during 2023…
Regulatory landscape
The regulatory framework for data centres in India offers high transparency and structure, helping bolster the data centre ecosystem. In a notable development, data centres were granted infrastructure status by the government under the Union Budget for financial year 2022-23. This move is applicable to data centres with over 5 MW IT load. Infrastructure status simplifies access to institutional credit at favourable rates and makes way for foreign investments. It facilitates easier equity investment and loan refinancing. Additionally, the Ministry of Electronics and Information Technology released the draft Data Centre Policy 2020. The national policy lays out a framework including various structural/regulatory interventions, investment promotion in the sector and possible incentivisation procedures, along with the institutional mechanism required for the governance. Data centres in India are also regulated by the Digital Personal Data Protection Act, 2023, which received presidential assent on August 11, 2023. The act aims to establish a strong data centre ecosystem in the country. Through the act, the government has regulated cross-border transfer of data by allowing the transfer of personal data outside India, except to countries restricted by the government through a notification. The data centre industry has supported various provisions of the act, including the delineation of roles and responsibilities of entities that determine the purpose and means of processing personal data, and entities that process personal data solely under direction and contract.
Several states, including Karnataka, Tamil Nadu, Uttar Pradesh, Odisha, Telangana and West Bengal, have released their data centre policies. These state policies offer fiscal and non-fiscal incentives, power subsidies, infrastructure support and “essential services” status to data centres within their jurisdictions. In May 2023, Maharashtra introduced its IT-ITeS Policy, 2023. The policy includes provisions related to infrastructure, utilities, power and ease of doing business to boost the growth of data centres in the state.
Investment influx
The data centre asset class is an amalgamation of real estate, infrastructure and technology, although with highly specialised specifications. Customer stickiness is extremely high in the data centre asset class, not just on price but also on a bunch of critical technical criteria. This is because it is not easy to migrate servers between data centres and customers would rather scale in the same data centre. This leads to lower risk for investors. With its downside protection and low risk, the data centre asset class allows diversification for investors, making it an attractive investment alternative.
According to a report by CBRE, India’s data centre industry witnessed investment commitments worth $21 billion during the first half (H1) of 2023. Overall, between 2018 and H1 2023, the sector attracted investment commitments of about $35 billion by both global and domestic investors. Hyperscale players dominated the majority of these investments with a share of about 89 per cent, while colocation providers contributed to the remaining 11 per cent. The top states that dominated the cumulative investment commitments were Maharashtra, Tamil Nadu, West Bengal and Uttar Pradesh.
During H1 2023, Amazon Web Services committed $12.7 billion towards the data centre segment in India. Meanwhile, STT GDC India and Sify Technologies announced investments worth $1 billion and $365 million, respectively. NTT Limited committed $300 million investment in Tamil Nadu and $242 million in West Bengal, while CapitaLand Investment Limited committed $162 million in Maharashtra.
Green initiatives and net zero targets
Data centre operators are increasingly prioritising sustainability and decarbonisation of their data centre portfolios, committing towards achieving net zero targets between 2030 and 2050. As of 2023, some of the leading players cut down their carbon emissions by 10-20 per cent by adopting sustainable measures. As per estimates by Colliers, the industry also saw a 24-28 per cent reduction in the overall carbon footprint and a 20-25 per cent renewable energy penetration since 2020 levels. During 2023, the average power usage effectiveness of traditional data centres stood at an estimated 1.9, compared to 1.3 for green data centres. However, a mere 20 per cent of the data centre capacity in India is LEED-certified. The industry is making a collective effort to minimise the carbon footprint and contributing to India’s broader efforts in achieving net zero by 2070.
Bharti Airtel announced that it would purchase 23,000 MWh of renewable energy by the fourth quarter of financial year 2023-24 for its data centre arm, Nxtra. Airtel announced that it would acquire stakes in the renewable energy project companies established by Continuum Green India Private Limited and Vibrant Energy Holdings Pte Limited to power six of Nxtra’s edge data centre facilities. Meanwhile, CtrlS Datacenters Limited is investing in 153 MWp solar projects across three states, Maharashtra, Karnataka and Uttar Pradesh. These projects will generate 250,000 MWh of energy annually. This includes a 100 MW (145 MWp) solar project in Maharashtra that will be fully owned and operated by CtrlS. The company has also deployed India’s first data centre to be wrapped with solar panels in Mumbai. The building has installed a 1.3 MWp solar panel. Sify Technologies has entered into renewable power agreements for the installation of 200 MWp of hybrid capacity, inclusive of solar and wind, of which 100 MW capacity is operational, to replace over 30 per cent of the conventional power to reduce its carbon footprint.
Growth of edge and hyperscale
Edge data centres present a promising investment opportunity with the growing 5G adoption and demand for lower-latency applications. Data centre operators are starting to establish edge centres with a focus on steadily penetrating Tier 2 cities. Besides, there is an escalating demand for hyperscale data centres arising from the rapid digitalisation across sectors and growing demand for artificial intelligence (AI) and big data applications, resulting in the need for significant computing and storage.
CtrlS Datacenters signed an MoU with the Uttarakhand government to set up a greenfield edge data centre of 10 MW capacity in the state over the next eight to ten years. Varanium Cloud Limited has launched its second edge data centre in Kudal, Sindhudurg, under its brand Hydra. Meanwhile, Nxtra by Airtel announced plans to develop six new hyperscale data centres across key metro cities – Mumbai, Pune, Bengaluru, Hyderabad, NCR and Kolkata. NTT plans to invest Rs 20 billion in a hyperscale data centre in Kolkata over the next few years, while Lumina CloudInfra plans to invest over $300 million to develop a hyperscale data centre campus in Airoli, Navi Mumbai.
Future outlook
An exponential increase in data consumption, implementation of 5G use cases, improving regulatory framework and robust investments will continue to drive substantial growth in the data centre industry, going forward. The sector has also started witnessing the entry of new players and partnerships. For instance, Reliance Jio is foraying into the data centre market, following the completion of the three-way joint venture among Brookfield Infrastructure, Reliance Industries Limited and Digital Realty, branded as Digital Connexion. The entity has already launched its first data centre campus, catering up to 100 MW critical IT load capacity in Chennai.
Overall, the data centre industry is expected to record a strong revenue, with a compound annual growth rate of 33 per cent over fiscals 2024-26. The sector will attract a total of Rs 1.6 trillion in investments over the next six years. Investments are anticipated in edge data centres due to growing data requirements in Tier 2 cities. Additionally, data centre players will continue to invest in green energy to meet their power requirements. As infrastructure becomes more complex and distributed, advanced technologies such as AI, machine learning and robotic assistance will power smart data centres.
