Foreign Investments Propel the Rise of Data Centers in India According to a recent CRISIL Ratings report, India's data center sector is poised to attract over Rs 45,000 crore in investments over the next three fiscal years, capturing the interest of a diverse array of global companies

By Pinkesh Kotecha

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In an age where internet usage has become nearly universal, the global demand for digital infrastructure is experiencing an unprecedented surge. Mobile phone subscription and use rates soar above 90% in most markets, fuelled by the increasing appetite for digital services and applications. This surge has resulted in a heightened need for digital infrastructure from cloud service providers, hyperscalers, and over-the-top media companies across all regions. According to JLL, globally, the colocation data center market is projected to experience robust growth with a 5-year Compound Annual Growth Rate (CAGR) of 11.3% from 2021 to 2026.

Amidst this global landscape of surging digital demands, India stands as a beacon for foreign investments in the data center industry. According to a recent CRISIL Ratings report, India's data center sector is poised to attract over Rs 45,000 crore in investments over the next three fiscal years, capturing the interest of a diverse array of global companies.

WHY THE SUDDEN SURGE

With 151 data centers currently in operation, India ranks as the 14th largest global market in this sector. The Indian data centre industry has grown from occupying 2.7 million square feet (msqft) in 2017 to 11 msqft in 2023. According to market research firm Arizton, India's data centre size stood at 447 MW in 2021. This has now increased to 819 MW.

The demand for data centers are fueled by crucial factors such as infrastructure availability, where considerations like power and fiber become pivotal

Noting the growth in the industry, the increase in foreign capital is the Indian government's proactive push for digitalization, epitomized by the "Digital India" campaign. Policies such as the National Digital Communications Policy, Data Protection Act, and the Data Centre Policy have collectively forged an enticing environment for global players seeking to establish operations within India. The DPDP Act, is placing enhanced emphasis on the local storage of personal data. This regulatory environment is influencing companies to invest in secure and compliant data storage solutions within the Indian market.

Moreover, the introduction of new submarine cable infrastructure linking Mumbai and Chennai to key global hubs like Singapore, South East Asia, Europe, and the Middle East ensures enhanced connectivity but also reduces latency, making it favorable for data center providers in India. The increased connectivity and strategic positioning will empower data center providers to offer more competitive services, catering to the escalating demands of businesses and consumers.

DEMAND DRIVERS

The demand for data centers is fueled by crucial factors such as infrastructure availability, where considerations like power and fiber become pivotal. In response to this demand, India emerges as a highly sought-after destination, backed by a well-developed telecommunications infrastructure and strategic positioning in Tier 2 and Tier 3 markets. Its reliable power grid, coupled with significant renewable energy sources aligns with the growing emphasis on sustainability objectives for businesses.

Furthermore, the rise of e-commerce, Internet of Things (IoT), and other data-intensive industries in India has amplified the demand for robust data infrastructure. To meet this, the concept of edge data centers has gained prominence in India.

POTENTIAL CHALLENGES

India's current data center capacity is inadequate to meet the rapidly expanding demand. As businesses aggressively pursue digital transformation in India, the anticipated surge in power consumption of data centers—expected to reach nearly 5 gigawatts over the next six to seven years. Addressing the burgeoning demand for data storage must go hand in hand with grappling environmental concerns and the imperative need for sustainable practices.

Pinkesh Kotecha

MD and Chairman, Ishan Technologies

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