Booming Data Centre Growth in India

India's economic expansion has been fortified by a significant increase in digital adoption across industries, resulting in a substantial surge in data consumption. The present economic take-off demonstrates the rising dependence of companies on virtual solutions, and therefore, the necessity for strong data centres arises. This requirement for data will continue to increase in future, thus prompting advances in the current state of data infrastructure, whereby it needs to respond to security, scaling and performance concerns raised by today’s new workloads.

Overview of Data Centres in India

The data centre industry has experienced significant expansion in both advanced and developing economies. This is due to the growing willingness of enterprises to invest in new data storage and deployment infrastructure. India's data centre sector is witnessing robust growth during the era of digitalisation. The nation is strategically situated to emerge as a worldwide epicentre for data centres, particularly those specializing in cloud computing, with a promising trajectory for future expansion.

According to Cushman & Wakefield report, India's current data centre capacity across the top seven cities is 977 MW. Looking ahead, India's data centre capacity is projected to experience considerable growth. The current under-construction capacity additions are estimated to reach 1.03 GW by 2028. Additionally, there are plans for further capacity expansion of 1.29 GW, bringing the total projected data centre capacity in India to 3.29 GW by 2028.

Source: imarcgroup

India's data centre market value is expected to increase from US$ 4.5 billion in 2023 to a projected US$ 11.6 billion by 2032, boasting a CAGR of 10.98%.

Major players in the Indian data centre market are:

• CTRLS Datacentres Ltd.
• Arshiya Limited.
• NTT Global Data Centres & Cloud Infrastructure India Private Limited
• Sify Technologies Limited.
• Cisco Systems India Pvt. Ltd
• Microsoft Corporation
• Reliance Communications Ltd. (Reliance Datacentre)

Factors Driving Data Centre Growth in India

RBI mandate of storing financial data in India

The financial sector has become increasingly dependent on digital solutions, from online banking to algorithmic trading. This digital transformation has necessitated secure and reliable data storage, rendering data centres an integral component of their infrastructure.

In 2018, the Reserve Bank of India's (RBI) mandated storing financial data within India. This regulation ensures that sensitive financial data is securely stored and processed locally, leading to increased investment and development in India's data centre infrastructure.

Increased digitalisation and internet penetration

At the beginning of CY24, India had an internet user base of 751.5 million, representing an internet penetration rate of 52.4%. The growing reliance on mobile internet, with India being one of the global leaders in this domain, has further highlighted the need for efficient data processing and storage capabilities. This trend has resulted in a remarkable expansion of data centre networks within the country.

Government initiatives and policies promoting data centre development

The government's crucial role in establishing clear regulations and supportive policies has created a stable and appealing environment for investors and operators. This, in turn, cultivates a sense of assurance within the market, drawing in investment and propelling the establishment of state-of-the-art data centre infrastructure.

Some of the schemes are as follows:

• Data Centre Incentivization Scheme (DCIS)

The DC Policy proposes the formulation of Data Centre Incentivization Scheme (DCIS), which will, among other things, specify fiscal and non-fiscal incentives for companies to use domestic equipment related to servers, storage, telecom, network devices, electrical, cooling equipment, etc.

• Data Centre Economic Zones (DCEZs)

India aims to set up four Data Centre Economic Zones (DCEZs) in the country so that the DCs located in these zones can take advantage of some additional incentives.

Rise in cloud computing services and demand for data storage

Cloud service providers represent a crucial factor fuelling the demand for data centres. As organisations of all scales transition towards cloud-based platforms for applications and data storage, the imperative for well-equipped data centres to host and oversee this continuously expanding information repository has become increasingly critical.

Challenges and Innovations

Infrastructure challenges

To address the growing demand for data centres that are caused by the integration of AI across sectors, data centre operators are investing heavily in new infrastructure. The investments include the construction of new facilities, upgrading of existing ones, and adoption of advanced cooling and power management technologies. For instance, the use of liquid cooling systems has helped in mitigating problems related to increased energy consumption within data centre design.

Energy consumption and sustainability issues

The requirement for extensive energy input makes it difficult for many established data centres to support Artificial Intelligence (AI) operations that require them. Data centres already use a lot of electricity, but this problem has been made even more pronounced by the incorporation of AI workloads. This has necessitated concerted efforts towards improving energy efficiency as well as coming up with sustainable approaches. Currently, India has installed power capacity of 430 GW. It aims to significantly expand its power generation capacity, targeting a doubling to 820 GW by 2030. Notably, renewable energy sources are expected to contribute approximately 61% to this expanded capacity.

Innovation in green data centre technologies include the following:

Talent requirement

India's large youth population presents a significant opportunity to address the talent acquisition challenges faced by the growing data centre industry. With over 35 million STEM (Science, Technology, Engineering, and Mathematics) graduates annually, India has a vast pool of skilled talent that can be leveraged to support the expanding data centre sector. This large graduate pool provides the potential to develop a skilled workforce capable of meeting the industry's growing demand for technical expertise.

Impact of Data Centre Growth on the Indian Economy

• Creating jobs and fostering economic growth
  • The growth of data centres in India is expected to create a large number of new jobs, both directly and indirectly.
  • Direct jobs will be created in the data centres themselves, such as roles in IT, engineering, operations and maintenance.
  • Indirectly, the growth of data centers will drive the creation of jobs in supporting industries such as construction, logistics, security and ancillary services.
• Attracting foreign investment
  • Global tech giants and cloud service providers are actively looking to establish their data center presence in India to cater to the growing domestic and regional demand for digital services.
  • The influx of FDI in the data center sector can lead to technology transfers, knowledge sharing and development of supporting infrastructure, all of which can have a positive ripple effect on the broader economy.
• Strengthening India's position in the global data centre market
  • India aims to establish itself as a global data centre hub by fostering a favourable ecosystem, tapping into the rising demand for data services and attracting more companies to set up operations, thus driving economic growth.

The Road Ahead

Edge computing and its implications

The rise of edge computing and its implications have been widely embraced, with the vast majority of businesses now leveraging cloud services for at least a portion of their operations. Edge computing is the next step in cloud technology. The adoption of edge computing in sectors such as smart cities, finance and banking is increasing rapidly, leading to a projected market worth US$7 billion by 2025. Consequently, companies will need to change how they manage and update their data centres and also include edge expenses in their Operating Expenses (OPEX).

Adoption of green technologies in data centres

The adoption of green technologies in data centres, recent advances in renewable energy sources, efficient cooling systems, AI, modular designs and energy-efficient hardware have considerably reduced the environmental impact of enterprise data centres. For example, moving forward into the future development will comprise quantum computing advancements on top of sound materials’ science knowledge, edge computing frameworks like hydrogen fuel cell rose carbon capture for instance that can help enhance sustainability around data centre infrastructure.

Incremental investment in Data center industry

India accounts for 20% of the worldwide data production but has only 3% of its data centre capacity. Further, data consumption in India could triple as a result of the adoption of 5G, IoT and AI technologies. The potential expansion of capacity is expected to double by 2026 to approximately 2,000 MW, leading to inclusive investment opportunities, with a projected capital expenditure of US$ 6 billion (Rs. 50,000 crore) over the next three years until 2026.

India possesses the potential to emerge as a global data centre hub due to several favourable factors, including the lower cost of construction, land and power compared to other countries. Additionally, India already has well-established IT infrastructure, talented workforce and a digitally enabled services ecosystem, which serves as a strong foundation for the development of a robust data centre industry.