Tracking the Explosive Growth of India’s Data Center Market

The growing digital economy in India boasts a large and relatively young population, with the majority being technology-savvy, especially through mobile usage. This has created a high demand for digital services.

Like many countries, the pandemic accelerated the transition of many services from paper-based to digital formats. A notable example is the shift towards a cashless economy in India, facilitated by UPI, similar to the adoption of Alipay and WeChat Pay in China.

India has a strong IT sector and a large talent pool with a high degree of English proficiency. As a result, many global corporations, from major banks to technology firms, are establishing local operations to take advantage of lower labor and operational costs.

The Indian government has been advocating for increased investment in digital infrastructure through several initiatives, such as Digital India and India Stack. The latter enables the creation of digital public goods and services accessible to businesses and individuals.

India has numerous submarine cable options and a well-developed fiber optic network, providing strong connectivity and low latency, both of which are essential for data center operations.

Recently the government has allowed 100% FDI ownership of data centers, lowering the barriers of entry, which has seen an influx of global players, financial institutions, and private capital coming in.

India faces similar challenges as other large-sized nations finding sufficient network connectivity nationwide. This is more apparent when comparing rural areas and metropolises. The lack of reliable and high-speed internet connectivity hampers the efficient functioning of data centers.

India’s regulatory environment is non-uniform, much like in the US, each state has their own interpretations of the law, and hence an operator seeking to build across multiple sites across more than one state would need to comply to the different forms of regulation. This can be anything to do with tax legislation, to energy and sustainability requirements.

Edge computing, bringing computing power closer to data sources, improves performance and reduces latency. This is especially relevant in remote areas with poor connectivity. Adopting renewable energy for data centers reduces carbon emissions and offers sustainable services. Additionally, data center operators can differentiate themselves by offering specialized services like disaster recovery, cybersecurity, and compliance management, adding value for customers.

lndia lacks a national regulatory regime that mandates substantial green energy usage in data center operations, except for meeting renewable purchase obligations. Consequently, there is a pressing need for significant incentives. Several states in, India, including Karnataka, Tamil Nadu, Telangana, Maharashtra, and Haryana, have taken steps to encourage data centers to prioritize renewable energy usage. These measures encompass a wide range of incentives and concessions, such as favorable industrial power tariffs, reimbursements for surcharges, and subsidies on electricity duties and taxes.

Securing a stable power supply is the primary challenge for data centers in India. Power outages are more common, and enterprises are often affected by these outages. This issue directly impacts server uptime for colocation providers and can lead to disruptions in datacenter operations.

India’s infrastructure and manufacturing industries are facing an acute shortage of highly skilled blue-collar workers. As the government and private organizations invest heavily in various projects, the rapid expansion of data centers is putting pressure on project timelines. The lack of trained professionals to meet the demand further exacerbates this challenge.

Continued digital transformation: India’s ongoing digitization efforts across various sectors, including government, healthcare, finance, and education, will continue to drive demand for data centers. The rollout of 5G technology is also expected to boost demand for edge data centers.

Investment in infrastructure and renewable energy: There is a strong push towards using renewable energy in data center operations, aligning with India’s broader sustainability goals. This trend will likely continue, with increased investments in green energy solutions to mitigate the challenges posed by India’s power supply situation.

Foreign investments and partnerships: India is becoming a preferred destination for global data center investments due to its large market size, economic growth, and regulatory landscape. We can expect more joint ventures and partnerships between international and local firms, bringing in both capital and expertise.

AI-driven investments: India is emerging as a significant player in the data center market, particularly regarding investments in AI. The country is seeing substantial investments in AI infrastructure, with major data center firms like Yotta making billion-dollar commitments to acquire advanced AI chips from global leaders such as Nvidia. This trend highlights India’s focus on enhancing its AI capabilities to support various sectors, including cloud services, digital transformation, and advanced analytics, positioning itself as a competitive hub for AI-driven data services in the region.

Regulatory support and innovation: Government support through favorable policies and incentives, such as the establishment of Data Center Economic Zones (DCEZs) and infrastructure status for data centers, will likely spur further growth and development. The Indian government and several states are providing incentives for data center investments including tax benefits, subsidies on land and power, and policies that support the establishment and expansion of data centers. States like Maharashtra, Karnataka, and Tamil Nadu have specific policies aimed at attracting data center investments, thereby making it a lucrative sector for both domestic and foreign investors.