How Indian cities are becoming data centre industry hotspots

India has one of the world's youngest and most tech-savvy populations, and digital adoption is at an all-time high in the country. As the world's second-largest telecommunications market, India also ranks second in the list of countries with the most mobile phones. Over the last year alone, the increasing adoption of digital transactions, IoT, and smart devices has created a significant demand for digital services, but more importantly, data centres. According to a recent report, India's data centre market is expected to grow from 375MW in H1 2020 to 1,078MW by 2025, at a CAGR of 21%.

Currently, the data centre industry in India is concentrated in four cities: Mumbai, Delhi, Bengaluru, and Chennai, which account for the majority of data centre sites and IT load capacities. Mumbai, in particular, has the most installed capacity. The pandemic increased the demand for more data centres, as businesses adopted remote and hybrid work models. Data centres are critical in allowing organisations to access, monitor, and process the massive amounts of data that will be generated in the coming years. Here are some of the reasons why India is an important location for data centre development.

India on a digital transformation Journey

The majority of India's population lives in rural areas, and the country is expected to have approximately 830 million smartphone users by the end of 2022.Access to the internet is rapidly increasing as tariff rates in India become more affordable to people of all income levels. People in most rural areas can now connect to 4G networks, and it's only a matter of time before 5G technology becomes a reality.Digital delivery of entertainment, healthcare, education, and goods and services is increasing. Furthermore, the pandemic has had a significant impact on remote and hybrid work, necessitating increased investments in cloud-based services and mobile technologies.

This will significantly increase demand for data centres in the country, particularly the most advanced tier-3 and tier-4 infrastructures, which will greatly benefit the Indian market in the near future. With massive amounts of data crossing borders and public cloud regions, the Indian government has incentivized the development of local data centres to protect Indian consumers and keep data local. The government's proposal to classify the data centre sector alongside critical infrastructure sectors such as power, rail, and roads created new incentives for the construction of hyperscale facilities, resulting in more players entering the market.

Data centres Long term sustainability

Data centres require power for both operations and thermal management.Data centre capacity is measured in Megawatts and Gigawatts. Power is critical in data centres. Data centres consume 3% of the world's electricity and contribute 0.3 percent of CO2 emissions. Climate change and the sustainability of data centre infrastructure are gaining popularity. Companies are concerned about their Corporate Social Responsibility, and one important component is environmental sustainability.

Companies are looking for environmentally responsible data centres that use sustainable energy from renewable sources and are carbon neutral; however, this can be difficult to find in India. At the same time, India's energy supply can be unpredictable. Solar is abundant, and investments are being made to provide round-the-clock availability from renewable sources with energy storage, providing data centres with more stable, resilient, and reliable power. To achieve Net Zero, data centres must consider their long-term sustainability as well as transitioning to low-carbon building materials and associated suppliers.

Reason behind Datacenters expansion across India

Global cloud service providers are currently driving the most demand for data centre facilities. These are the decision-makers and demand generators who influence data centre operators' site selection criteria and final land acquisitions. India is a very large market for hyperscalers entities that provide large-scale internet, networking, and cloud services to organisations for the next 5 years and beyond as the world's second-most populous country with an ever increasing smartphone adoption rate. Due to its proximity to cable landing stations, Mumbai is by far the most popular destination for data centres, and capacity is expected to be increased from the current 270 MW to an additional 800+ MW in the future. Due to its large domestic consumer base, India is a natural fit for global data centre operators looking to expand in Asia, which is aided further by the fact that data centre supply is reaching saturation point in cities such as Singapore.

Geographic Distribution – Present & Future

Large data centres are looking to establish facilities in major cities to serve the majority of India and, in the future, other Asian regions as well. The massive costs involved in laying inland fibre optic cables from the nearest paths make establishing data centres in multiple cities prohibitively expensive. As a result, the majority of current demand is concentrated in cities such as Mumbai, Chennai, Noida, and Hyderabad, followed by Bangalore, Pune, and Kolkata. However, for some services, such as autonomous vehicles, smart cities, IoT applications for homes or industries, surveillance, gaming, and so on, operators will need to ensure minimal to zero latency.

In such cases, it makes sense to keep data close to end users. Furthermore, as a result of a decentralised workforce, Tier II cities' data requirements are increasing. This will also increase demand for smaller colocation data centres that can be quickly deployed and built closer to smaller cities. We are already seeing interest in establishing small data centres with capacities of less than 2 MW in Tier II cities. However, their initial scope will be limited.

What Government can do?

India can enact fiscal and non fiscal incentives to encourage the development of data centres outside of urban agglomerations. Naturally, this necessitates a substantial and consistent fibre and power infrastructure. The government will need to identify specific clusters throughout the country while considering the appropriate technical criteria in order to develop a policy for data hubs in those clusters. It must also consider implementing common minimum building codes to ensure safety, security, and long-term viability. Globally, data centre operators and hyperscalers are significant users of renewable energy, and this trend is evident in India as well. The demand for renewable energy ranges from 50 to 100 percent of the facility's planned capacity. Incentives for renewable energy developers, as well as a simplified power policy and smooth regulatory approval processes for offtake, can benefit the industry.

The Future has just Begun

The data centre industry in India is expected to grow in the forthcoming years, with a total economic value of USD 1 trillion by 2025.This will be driven primarily by robust telecom infrastructure and increased government support for Digital Transformation in India, which has gained significant traction recently following the pandemic. Among those top tier cities such as Mumbai, Chennai & Bangalore are expected to benefit the most from the data centre industry's expansion.