New Delhi India is likely to witness a revolutionary jump in the digital realm with data centre capacity in the country expected to more than double to 2-2.3 gigawatts (GW) by fiscal 2027, a report by Crisil Ratings said on Wednesday. This rise can be ascribed to rising digitalisation, such as more businesses embracing cloud storage, but also the rapid advancement in technologies such as Generative Artificial Intelligence (GenAI).
The Increasing Need for Data Centers
Data centres are at the heart of the digital world. These are buildings full of thousands of networked servers that organizations use to store, process, and deliver gargantuan amounts of data from a distance. As the Indian digital economy grows, demand for such infrastructure has exploded.
Two key reasons are driving this growth, the Crisil report said:
- Quick Transition to Digital Channels: In the wake of the COVID-19 outbreak, organizations in every industry are all moving ahead with their digital transformation efforts. Cloud services are becoming more and more popular among business users, who benefit from high performance, high scalability, and strong security. Increase in data storage demand In the wake of this move towards digital formats, there’s a growing demand for strong and resilient platforms to store data, driving demand for data centres.
- Internet Boom: With the advent on high-speed internet availability, Indians have started consuming content aggressively over the web including social media, live streaming for OTT, to online shopping and digital payments. Mobile data traffic grew at a CAGR of 25% over the past 5 years, Crisil said. Within this, in fiscal 2024, average consumption of data per user per month was at 24 GB (giga bytes), and is expected to increase to 33-35 GB in fiscal 2026.
The Future and GenAI’s Position in It
Yet another trend that is capable of fuelling the need for data centres is Generative Artificial Intelligence (GenAI). GenAI applications — chatbots to photo-realistic content generation tools — need massive amounts of computational power and low overhead. GenAI workloads are not like traditional cloud workloads and require a higher level of processing efficiency, and state-of-the-art data centres are needed to support these technologies.
Investments And Growth Of The Industry
To cater to this growing demand, the report estimates that an investment of ₹55,000-65,000 crore will be needed in the next three years. The funds will be used for land acquisition, construction infrastructure, and purchase of state of the art power and cooling equipment, it said.
“As the ICRA management may need to approach the ICAI to seek its approval of their responses in the matter, ICAI has in the interim withdrawn the show cause notice,” Manish Gupta, Senior Director and Deputy Chief Ratings Officer at Crisil Ratings said.
“Data centre operators usually have land, building, etc, constituting 25-30% of the total capex build out, created on the lines of potential tie-ups in the future.”
Both Current and New Players’ Growth
It is because the industry is growing due to not only the expansion of existing players but also the entry of new players. Much of this demand is coming from hyperscalers — giant data centres that serve companies with massive digital infrastructure requirements. Hyperscalers provide the backbone of the cloud-computing, big data and other resource-hogging digital operations.
- Data Localisation and Centre for State Incentives
- The focus of the government on data localisation, the requirement that data generated within the country must be stored on local servers, has added to investment in data centre infrastructure. Some state governments have offered generous incentives to woo investment such as subsidies for land, and for power.
- Cash Flow and Credit Quality Stable
The report also highlights the financial security of the data centre industry. Regular to good incoming cash flows are likely to enable industry players to sustain strong credit quality. This stability makes the industry an attractive investment destination for domestic and foreign players.
Challenges and Opportunities
While the future looks very bright for the data centre industry in India, some challenges still exist:
- Capital- Intensive: Data center requires heavy capital expenditure for land, building, and for cooling and power infrastructure. For smaller players, dev costs can make these prohibitive.
- Energy: Energy use at data centres is very high and power consumption and sustainability play an important factor. Operators are now ramping up their shift to renewable energy sources and novel cooling methods in response to this trend.
- Work Force: As the industry expands, it can provide employment to a team of professionals to maintain and run these facilities. Training and keeping talent on sites will be essential for long-term growth.
That said, the opportunities in the space are far greater than the challenges. The emergence of technologies such as GenAI, the increasing use of cloud, and pro-industry policies provide an enabling environment to grow.
Wider picture: Digital India
The growth of India’s data centre capacity is consistent with the overall vision of a Digital India where technology is an enabler and an engine that drives the nation’s economy to a higher echelon, takes governance to the last-mile, to the most remote areas, and also improves the quality of life of our people in myriad ways. India’s world-class data centre infrastructure not only caters to domestic demand, but is also being created with an eye on fulfilling the global requirement for digital services.
Future Prospects
To date and as India heads towards fiscal 2027 the data centre sector remains a key enabler in the country’s digital transformation. Backed by strong investment, these technologies and policy framework, the sector has the potential to create large economic opportunity, employment and further consolidate India’s standing in the world digital economy.
In short, for those who can read between the lines, the Crisil report presents a dim future for India’s data centre market. The country is well on its way to creating digital infrastructure of tomorrow by overcoming hurdles and capitalising on opportunities. Since data is the furled in the blood stream of modern economies, India’s advances in this sector are likely to impact businesses and citizens at large.
