Unlocking the Digital Future: A Deep Dive into India’s Data Center Market

Background and Context

In the digital era, India has undergone a profound transformation, especially since 2014 when the government placed a significant emphasis on Digital India. This flagship program aimed to enhance online infrastructure, boost digital literacy, and increase internet penetration. The surge in data consumption and internet bandwidth is attributed to the expanding reach of social media, the rise of smart devices, data localisation practices, increased cloud service adoption, and the digital transformation of Indian companies. The COVID-19 pandemic further accelerated the digital shift, fostering a growing demand for bandwidth and storage capacities.

Key Facts & Figures

The Indian data centre industry, constituting 1-2% of the global market share, has experienced a commendable compound annual growth rate (CAGR) of 15-20% since fiscal 2016. By fiscal 2020, it reached approximately $1.2 billion. The data centre capacity in India is poised to double to around 1,700-1,800 megawatts by fiscal 2025, fueled by the surge in data, digital adoption, and local data storage mandates.

Data Hubs – Stock and Supply

Mumbai has emerged as a hotspot for data centre development due to under-sea cable landings. Other cities such as Chennai, NCR, Bangalore, and Hyderabad are also experiencing buoyant growth. India, with its high bandwidth speed, lower power tariffs, and the presence of hyperscalers, has the potential to become a data centre hub in the Asia-Pacific region.

Recent Trends and Changes in the Industry

Demand Drivers:

  • Growing Edge Data Centre Demand: Initiatives like Smart Cities, 5G adoption, IoT, and AI are propelling the need for Edge Data Centers.
  • Data as the New Oil: The government’s announcement of a Data Centre policy reflects the recognition of data’s crucial role. States like Maharashtra, Telangana, and Tamil Nadu offer incentives for Data Centre parks.
  • Increased Cloud Services Adoption: Major cloud service providers and companies are investing in Data Centers. The Indian Public Cloud Services market reached $1.6 billion in H1 2020, and cloud spending is expected to grow at a CAGR of 30%, reaching $7.1 billion in 2022.

Growing Internet & Mobile Broadband Penetration:

  • India has 702 million mobile broadband users, with broadband penetration at 45%.
  • Nokia Mobile Broadband Index indicates that India’s mobile data usage is expected to increase, driven by a rising number of 4G subscribers.

Surge in Data Usage:

  • Data traffic grew by 36% in 2020.
  • COVID-19 lockdowns accelerated digital adoption, increasing demand for bandwidth and storage capacities.

Transition to Co-location and IaaS-Based Offerings:

  • Captive Data Centres still dominate, but colocation is growing and expected to be nearly equal by 2025.
  • Post-2025, IaaS’s share in IT infrastructure spends is forecasted to increase to over 40%.

Challenges in the Industry

  • Land Sourcing: Process complexities, delays, and costs, especially in and around major cities.
  • Regulatory Approvals: Numerous approvals at central, state, and local levels pose challenges, lacking a single-window system.
  • Power Costs: Higher power costs compared to developed countries.
  • Import Component Costs: Significant import components in Data Center equipment, leading to higher costs.
  • Unique Building Designs: Lack of a separate building code for Data Centers.

Future Avenues for Growth

  • Next Rung of Cities: Due to infrastructure constraints in major cities, the next wave of growth is anticipated in tier-II cities.
  • Edge Data Centres: The rise of Edge Data Centres presents a significant opportunity, with tier-II cities like Ahmedabad, Jaipur, Nagpur, and Kochi expected to attract investments.

Stakeholder Expectations:

  • Developers: Data Centers are emerging as an alternative real estate asset class.
  • Investors: Data Centers are considered a safe investment, attracting domestic and offshore funds.
  • Operators: Transformation from captive to colocation Data Centers is expected, driven by technology adoption and government initiatives.
  • Government: Incentive schemes for Data Centre development are likely, with states offering specific incentives.

In conclusion, India’s Data Center market is at the forefront of the digital revolution, poised for remarkable growth fueled by technological advancements, government initiatives, and the changing landscape of data consumption. As the nation strives for digital dominance, its Data Center industry stands as a critical pillar supporting this ambitious journey into the digital future.