The Indian data centre market has been growing rapidly. This rapid growth has been fuelled by the adoption of cutting-edge technologies such as artificial intelligence (AI) and big data analytics, coupled with central and state government initiatives. The fledgling market has opened up a plethora of opportunities for industry stakeholders, including data centre developers, energy management companies, and software and solution providers.
Though security challenges continue to plague the sector, companies are taking appropriate measures to mitigate the risks.
A look at some of the key trends dominating the data centre sector, the demand drivers of the sector, recent initiatives taken by telcos, challenges plaguing the sector and the way forward…
Market overview and key trends
There are a few micro trends that are currently dominating the data centre space. Of late, there has been an increased virtualisation of data and the industry is moving towards cloud infrastructure. Further, there is an increased push by the government for data localisation. The government is also going big on various digitalisation initiatives. This has also triggered a huge wave of data consumption and a corresponding requirement for data centres in India. Another key trend dominating the space is that of green energy. The emission of tonnes of carbon in MW levels from data centres is actually becoming a concern for the data centre industry, the government and environmental bodies. Therefore, data centres are now moving towards solar and renewable power.
As per industry experts, over the next few years, data centres are expected to witness a compound annual growth rate (CAGR) between 14 and 20 per cent. Co-location investment is going to grow by 3-5 per cent in India. As far as the revenue part is concerned, pure colocation hosting will grow from $700 million-$800 million to $1.5 billion by 2025. These are the emerging trends in the segment.
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, 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. According to the Nokia Mobile Broadband India Traffic Index 2021, overall data usage increased by 36 per cent in 2020 due to greater usage of smartph-ones and fixed wireless access. The increasing usage of e-commerce, edtech and digital transactions during 2020 placed the existing IT infrastructure of enterprises under pressure. As such, the demand for data centres increased multifold.
In fact, the Covid-19 pandemic, which facilitated the transition to a remote working model, has amplified the role of data centres to an entirely new level. As per JLL’s estimates, 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. Further, the government is playing an active role in adding to the data centre growth in the country. The increased thrust being placed by the government on data localisation under the Personal Data Protection Bill has also added to the demand for data centres. Under the proposed rules, the data generated in India must be stored within the country, protecting personal and financial data from foreign surveillance. This is expected to create a bank of opportunity for data centre players to set up shop in the country.
Telco focus areas and plans
On their part, telcos too have been upping their game in the data centre space. For instance, in September 2021, Airtel announced investment plans to significantly scale up its data centre network to serve the requirements of India’s fast growing digital economy. Airtel also unveiled a refreshed brand identity, “Nxtra by Airtel”, for its data centre business. Nxtra by Airtel has the largest network of data centres in India. It currently operates 10 large and 120 edge data centres located across the country and manages critical submarine landing stations. Coupled with Airtel’s global network, it offers secure and scalable integrated solution to global hyperscalers, large Indian enterprises, start-ups, small- and medium-sized enterprises, and governments.
Last year, Jio had announced plans to build a data centre in Uttar Pradesh at an investment of around $950 million. For the data centre, a 20 acre plot had been allotted to the company and the project is expected to cost approximately Rs 70 billion. The centre will consist of six interconnected data centre buildings offering a 30,000-rack of capacity and 200 MW of power.
Data protection and security
Given the exponential growth being observed in the data centre sector, these centres can become potential targets of security attacks. This staggering mass of data stored in the data centres is an invaluable source of critical information for organisations, helping with their strategic decision-making. As such, data centres are quite prone to cyberattacks.
Thus, security issues need to be addressed via tighter controls in terms of logical as well as physical security, such as building access-control using drones and increasingly advanced facial recognition to improve overall security.
Taking stock of these concerns, companies have started taking key risk mitigation measures. Zero trust architectures are being increasingly adopted, preventing any user or device from connecting to the network without permission. For this model to work, organisations must micro-segment all their resources, enforce strict access controls, but also inspect and record all network traffic by taking into account terminals, workloads and data.
Furthermore, to reinforce the security of data outsourced to these infrastructures, the majority of businesses are opting for multi-cloud architectures, such as those of Azure or Amazon. Businesses will soon rely on advanced encryption technologies, such as homomorphic encryption, which applies a mathematical calculation system to data without having to decrypt it.
Outlook and opportunities
Given the massive surge in data consumption that is taking place, the Indian data centre industry is expected to grow by leaps and bounds. According to CRISIL, the Indian data centre industry is expected to record a 25-30 per cent CAGR to reach $4.5 billion-$5 billion by fiscal year 2025. Further, as per a recent JLL report, the data centre space is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW. Geographically speaking, Mumbai and Chennai are expected to constitute 73 per cent of the sector’s total capacity addition during 2021-23, while other cities such as Hyderabad and Delhi-NCR are emerging as new hotspots.
The study also noted that in terms of investment requirement, India’s data centre sector will need about $3.7 billion over the next three years in order to fulfil the 6 million square foot greenfield development opportunity for the industry.
Given the plethora of opportunities in the data centre space, operators and infrastructure investors are increasingly pursuing expansion plans in India. To this end, a number of players are adopting the acquisition route to enter the Indian market. Various policies and reforms brought in by the government with the aim of catapulting India into a global data hub have also provided the necessary impetus to investment growth in the Indian data centre space.
