India’s data centre (DC) operational capacity is expected to rise to 2,000-2,100 MW by March 2027, with investments of Rs. 40,000-45,000 crore in FY2026-FY2027. The sector is expected to see a development pipeline of 3.0-3.5 GW in the next 7-10 years, involving significant investments of Rs. 2.0-2.3 lakh crore.
The demand for DC capacity is driven by cloud, 5G roll-out, machine learning, and IoT, while AI-led high computing requirements present a significant opportunity for operators. The Union Budget 2025-26 includes the establishment of a centre of excellence in AI for education.
The BharatNet project, and the Deeptech Fund of Funds to provide access to skilled professionals in AI, cyber security, and cloud computing. The top 5 DC players’ revenues are expected to grow by 18-20% YoY in FY2026, with operating margins expected to remain healthy.
India’s data centre industry is poised for substantial growth, with projections indicating an investment influx of ₹2.0-2.3 lakh crore over the next 7-10 years. This surge is anticipated to elevate the country’s operational data centre capacity from approximately 1,150 MW as of December 2024 to 2,000-2,100 MW by March 2027.
Key Drivers of Growth
Several factors are contributing to this robust expansion:
- Digitalization and Data Consumption: The widespread adoption of digital services, e-commerce, and online education has led to an exponential increase in data consumption, necessitating enhanced data storage and processing capabilities.
- Data Localization Policies: Government mandates requiring data to be stored within national borders have compelled companies to invest in local data centre infrastructure, ensuring compliance and data security.
- Technological Advancements: The proliferation of technologies such as 5G, Artificial Intelligence (AI), and the Internet of Things (IoT) has escalated the demand for robust data processing and storage solutions.
Investment Projections
ICRA’s analysis indicates that to achieve the targeted capacity of 2,000-2,100 MW by FY2027, an investment of ₹50,000-55,000 crore is required during FY2025-FY2027.
This substantial capital infusion underscores the industry’s commitment to scaling operations to meet burgeoning data demands.
Challenges and Considerations
While the growth trajectory is promising, several challenges need to be addressed:
- Infrastructure Development: Establishing new data centres necessitates significant investments in land, power, and cooling systems, which can be capital-intensive and time-consuming.
- Energy Consumption: Data centres are energy-intensive, and ensuring a reliable and sustainable power supply is crucial. Integrating renewable energy sources and adopting energy-efficient technologies are essential to mitigate environmental impacts.
- Skilled Workforce: The rapid expansion requires a workforce proficient in data centre operations, cybersecurity, and network management. Investing in training and development is vital to bridge the skill gap.
Regional Development
Major urban centres like Mumbai, Chennai, and Hyderabad are emerging as data centre hubs due to their strategic advantages, including robust infrastructure, connectivity, and proximity to business districts. However, expanding to tier-2 and tier-3 cities could decentralize growth, reduce latency, and promote regional development.
Future Outlook
The Indian data centre industry’s trajectory aligns with global trends, reflecting a shift towards digital economies. The anticipated investments and capacity enhancements are expected to position India as a significant player in the global data centre landscape, catering not only to domestic needs but also attracting international clients seeking reliable and scalable data solutions.
In conclusion, the projected investments of ₹2.0-2.3 lakh crore over the next 7-10 years signify a transformative phase for India’s data centre industry. Addressing the accompanying challenges through strategic planning, sustainable practices, and skill development will be pivotal in harnessing the full potential of this digital infrastructure boom.
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