The country has also already experienced a significant rise in demand for data centres. Among everything else, AI adoption has emerged as a key driver. With AI consumption having surged manifold since the launch of ChatGPT, availability of a robust data centre ecosystem has become paramount for businesses.
Alongside this wave of digitization—that will enhance internet penetration in the country—the evolution and adoption of technologies like 5G, IoT, and artificial intelligence, is anticipated to keep the demand for data storage and processing capacity at elevated levels, thereby boosting the need for data centres.
“Apart from the digitization-led growth factors, the Indian market offers low-cost benefits for setting up data centres, mainly due to relatively cheaper real estate costs, which also facilitate data centre growth in the country,” said Puja Jalan, director at CareEdge Ratings.
The credit rating agency estimates that the data centre capacity in the country is expected to double to around 1,950 MW by 2026, from 877 MW in 2023. This would entail capital investments of approximately ₹50,000 crore till then.
A budget wish list
That said, the upcoming budget is likely to include substantial measures to bolster the country’s data centre ecosystem, underscoring the government’s commitment to advancing digital infrastructure here.
Potential announcements may involve tax incentives, infrastructure development, renewable energy subsidies, streamlined policies and investment in technology and skills, said Varun Vijayan, director and head of tech, digital, and new-age business, at Anand Rathi Investment Banking.
He believes that there could also be increased encouragement for public-private partnerships, to boost data centre investments.
These support measures, while aiming to strengthen India’s digital infrastructure and meet the rising demand for data services, would also strengthen the country’s data localization laws, and government initiatives like Digital India.
Additionally, the data centre industry also faces a lengthy and cumbersome approval process that involves multiple authorities. This leads to project delays and increased costs for the data centre service providers and customers alike.
Hence, the government’s focus on enabling ease of doing business in the sector through faster pre-clearances could shorten the construction timelines for setting up new data centres and lead to significant cost savings for firms, some market participants said.
The cost of setting up and operating a data centre depends on various factors, such as server size and power usage costs.
According to a report by Batlivala & Karani Securities India, dated 26 April, servers are replaced 3-5 times over the lifespan of a data center, and when costs are spread out (amortized) over the life of the data center, server costs remain a significant part of the overall expenses.
As for power usage, it forms a large chunk at 40% of their total cost and 80% of their operational cost, the report stated.
“Operating a data centre involves significant operational expenses related to power, cooling and infrastructure maintenance,” stated a PwC report dated 25 June.
Considering this, the government can drive the industry towards sustained growth by providing subsidies or incentives for renewable energy adoption, which would also reduce operational costs and promote sustainability, it added.
Ready for take-off
What’s more is that India’s data centre market is set to outpace global growth in the sector.
While the worldwide market is pegged to grow from $220 billion in 2021 to $342 billion by 2027 at a compound annual growth rate (CAGR) of 7.7%, the Indian market, valued at $4.5 billion in 2023, is expected to more than double to $11.6 billion by 2032, with an impressive CAGR of 11-12%, highlighted Anand Rathi’s Vijayan.
He also pointed out that major global players like Amazon, Microsoft, Google, and domestic giants like Reliance Jio and the Adani Group have pledged significant investments in the sector.
Analysts that Mint spoke to believe that the data centre story in India can be leveraged from an investment perspective through companies that provide products and services—like equipment, energy, real estate, etc.—to data centre operators.
The current data centre capacity in India is around 0.9 GW after multiple years of strong growth, though off a smaller base, said Priyankar Biswas, analyst–India industrials, logistics and metals, at BNP Paribas. Further, given the massive increase in data consumption and the focus on data localization (data sovereignty), Biswas expects data centre investments to remain strong for the next few years.
“We have compiled (not exhaustive) plans of data centre related investments by key players, wherein we estimate 5.5 GW of data centre capacity by 2030, which appears to be significantly higher than what the general consensus is,” Biswas said.
The additions are largely around Mumbai and Chennai, which benefit from their proximity to submarine cable landing in their vicinity, he pointed out.
Who gains?
Several listed entities in the data centre supply chain, including engineering, procurement and construction (EPC) players, and telecom and power generation companies, are establishing their own data centres.
Given that India’s data centre capacity is seeing more than 50% CAGR and should rise to 6% of demand by 2030, from less than 1% currently, Jefferies India estimates power generation and transmission and distribution investments to rise 2.2 times to $280 billion between FY24 and FY30, compared to the investments between FY17 and FY23.
This growth in capacity will cater to the overall rise in demand for data centre services.
Jefferies expects Siemens, ABB India, L&T, KEI Industries, Voltas and Bluestar, among others, to be the key beneficiaries of the data centre capex in India, it stated in a report dated 18 June.
Siemens has the largest exposure to data centres in Jefferies’ coverage universe, at 40-45% of a data centre’s project costs, while ABB’s exposure stands at 20-25%, according to the brokerage’s report.
L&T, Voltas and Bluestar, meanwhile, each have exposure of around 15%, while companies supplying power backup gensets have 10%, though most are imported due to a lack of local manufacturing for capacities over 2,000 Kilo Volt ampere (KVa).
Cummins, a supplier of gensets, reported that data centres contributed about 10% to its power generation segment revenues in FY24, which was 4% of total, according to the Jefferies report.
Major FOMO avoided
Even large global funds and private equity players are entering this space.
Leading global data centre companies, such as NTT, AWS, Colt DCS and Indian conglomerates such as Reliance Industries and Adani Group, have shown interest in setting up data centre capacity, the Jefferies report stated.
“Occupants include Amazon, Netflix, banks and fintech companies, among others. $27 billion investments have been announced in the last 36-48 months,” it added.
Other key listed players poised to benefit from the data centre boom include prominent data centre operators like Bharti Airtel through Nxtra Data, Reliance Industries through Jio, and Tata Communications.
IT services titans, such as Infosys, Wipro, HCLTech and Tech Mahindra are also in the fray, and ramping up their data centre solutions and capacity as demand evolves.
On the real estate front, developers like DLF and GMR Infrastructure are also making strategic moves into the space, while telecom giants Bharti Airtel and Reliance Jio are enhancing critical connectivity infrastructure.
