India’s data centre (DC) operational capacity is expected to rise to 2,000-2,100 MW by March 2027, driven by cloud, 5G roll-out, machine learning, and IoT. The sector is expected to see significant investment in FY2026-FY2027, supported by internet/data usage and data localisation initiatives.
The development pipeline for DC players and new players is expected to be 3.0-3.5 GW in the next 7-10 years, involving significant investments of Rs. 2.0-2.3 lakh crore. The Indian government’s proposal to set up a centre of excellence in AI for education, the BharatNet project, and the Deeptech Fund of Funds complement the strong growth prospects for.
DC sector. Key parameters for DC operators include landing stations, fibre connectivity, uninterrupted power supply, proximity to tenant’s headquarters, and high disaster proofing. ICRA estimates revenues for top 5 DC players to expand by 18-20% YoY in FY2026, with operating margins expected to remain healthy in the range of 40-41%.
India’s data centre industry is poised for substantial growth, with anticipated investments ranging between ₹2 lakh crore to ₹2.3 lakh crore over the next 7 to 10 years, according to a report by ICRA. This surge in investment is driven by increasing digitalization, data localization mandates, and the proliferation of technologies such as 5G and artificial intelligence.
Projected Capacity Expansion
The country’s data centre capacity is expected to more than double from the current 950 megawatts (MW) to approximately 2,000-2,100 MW by the fiscal year 2027 (FY2027). This expansion will require an estimated capital expenditure of ₹50,000-55,000 crore during the period of FY2025 to FY2027.
Key Drivers of Growth
- Digital Explosion: The accelerated adoption of digital services, e-commerce, and online education has led to an unprecedented increase in data generation and consumption.
- Data Localization Initiatives: Government policies mandating the storage of data within national borders have compelled companies to establish local data storage solutions, thereby boosting demand for domestic data centres.
- Technological Advancements: The rollout of 5G networks and the integration of artificial intelligence in various sectors necessitate robust data infrastructure to handle increased bandwidth and low-latency requirements.
- Cloud Adoption: A significant shift towards cloud computing by businesses aiming for scalability and cost-efficiency has further fueled the need for expansive data storage and processing facilities.
Investment Landscape
Both domestic and international players are actively investing in the Indian data centre market. Major technology firms such as Amazon Web Services, Microsoft Azure, and Google have established significant data centre operations in the country. Additionally, existing players like NTT, CtrlS, Nxtra, and STT India are expanding their capacities to cater to the growing demand.
Government Initiatives
The Government of India has recognized the strategic importance of data centres by according them infrastructure status in the Union Budget 2022-2023. This recognition facilitates easier access to credit and incentives for investors, thereby accelerating the development of data centre infrastructure.
Challenges and Considerations
Despite the optimistic outlook, the industry faces several challenges:
- Energy Consumption: Data centres are energy-intensive, and ensuring a sustainable power supply is crucial. Investments in renewable energy sources and energy-efficient technologies are essential to mitigate environmental impacts.
- Skilled Workforce: The rapid expansion necessitates a skilled workforce proficient in data centre operations, cybersecurity, and network management. Addressing this demand requires focused educational and training programs.
- Regulatory Compliance: Navigating the complex regulatory landscape, including data protection laws and environmental regulations, requires meticulous planning and adherence to ensure smooth operations.
Future Outlook
The Indian data centre market presents a $25 billion opportunity over the next decade, driven by the rising demand for AI-enabled data centres and cloud services. Capacity utilization is projected to reach 80-90% within one to two years of operation, mitigating utilization risks.
In conclusion, India’s data centre industry is on a trajectory of significant growth, underpinned by substantial investments and supportive government policies. Addressing the accompanying challenges through sustainable practices and skill development will be pivotal in realizing the sector’s full potential in the coming years.
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