India’s digital landscape is set for a transformative leap as the country’s data centre capacity is expected to more than double, reaching 2-2.3 gigawatts (GW) by fiscal 2027, according to a report by Crisil Ratings. This surge is attributed to increasing digitalisation, growing reliance on cloud storage by businesses, and the rapid evolution of technologies like Generative Artificial Intelligence (GenAI).
The Growing Demand for Data Centres
Data centres are pivotal in today’s digital ecosystem. These facilities house large groups of networked servers used by organizations to store, process, and distribute massive amounts of data remotely. With the digital economy expanding rapidly in India, the demand for such infrastructure has skyrocketed.
The Crisil report highlights two major factors driving this growth:
- Rapid Shift to Digital Platforms:
Post the COVID-19 pandemic, enterprises across sectors have accelerated their digital transformation efforts. Businesses are increasingly adopting cloud computing solutions to enhance efficiency, scalability, and security. This shift to digital platforms has created a need for robust and reliable data storage solutions, fueling demand for data centres. - Boom in Internet Usage:
With greater access to high-speed internet, India has witnessed a surge in activities such as social media consumption, OTT streaming, and digital payments. Crisil noted that mobile data traffic has grown at an impressive compound annual growth rate (CAGR) of 25% over the last five years. By the end of fiscal 2024, mobile data usage stood at 24 GB per month per user and is projected to rise to 33-35 GB by fiscal 2026.
The Role of GenAI in Shaping the Future
Generative Artificial Intelligence (GenAI) is another key factor poised to drive the demand for data centres. GenAI applications, which range from chatbots to advanced content creation tools, require substantial computational power and low latency. Unlike traditional cloud computing, GenAI workloads demand higher levels of processing efficiency, making state-of-the-art data centres essential for supporting these technologies.
Investment Requirements and Industry Growth
To meet this rising demand, the report estimates that an investment of ₹55,000-65,000 crore will be required over the next three years. These funds will primarily be allocated toward land acquisition, building infrastructure, and procuring advanced power and cooling equipment.
Manish Gupta, Senior Director and Deputy Chief Ratings Officer at Crisil Ratings, stated:
“Data centre operators typically build infrastructure — land and building, which account for 25-30% of overall capital expenditure — with the expectation of future tie-ups.”
Expansion by Existing and New Players
The industry’s growth is being propelled by both the expansion plans of established players and the entry of new players. A significant portion of this demand is driven by hyperscalers—large-scale data centres that cater to businesses with extensive digital infrastructure needs. Hyperscalers play a critical role in supporting cloud computing, big data analytics, and other resource-intensive digital operations.
Data Localisation and State Incentives
The government’s emphasis on data localisation—mandating that data generated within the country must be stored locally—has further spurred investment in data centre infrastructure. Several state governments have introduced attractive incentives to attract investment, including subsidies on land and power costs.
Stable Cash Flows and Credit Profiles
The report also underscores the financial stability of the data centre sector. With consistent and healthy cash flows expected, industry players are likely to maintain strong credit profiles. This stability makes the sector an attractive investment option for both domestic and international stakeholders.
Challenges and Opportunities
While the outlook for the data centre industry in India is highly positive, certain challenges remain:
- High Initial Costs:
Setting up a data centre involves significant capital expenditure on land, buildings, and advanced cooling and power systems. These costs can be prohibitive for smaller players. - Energy Requirements:
Data centres consume vast amounts of electricity, making energy efficiency and sustainable practices critical concerns. Operators are increasingly adopting renewable energy sources and innovative cooling solutions to address this issue. - Skilled Workforce:
The growing industry requires a pool of skilled professionals to manage and operate these facilities. Training and retaining talent will be crucial for sustaining long-term growth.
Despite these challenges, the opportunities in the sector far outweigh the hurdles. The rise of technologies like GenAI, the growing reliance on cloud solutions, and supportive government policies create a fertile ground for growth.
The Bigger Picture: Digital India
The expansion of India’s data centre capacity aligns with the broader vision of a Digital India, where technology drives economic growth, enhances governance, and improves the quality of life for citizens. By building world-class data centre infrastructure, India is not only meeting domestic demand but also positioning itself as a global hub for digital services.
Future Prospects
As India progresses toward fiscal 2027, the data centre industry is expected to play a central role in enabling the country’s digital transformation. With robust investments, innovative technologies, and a supportive policy framework, the sector is set to create significant economic opportunities, generate employment, and strengthen India’s position in the global digital economy.
In conclusion, the Crisil report paints an optimistic picture of India’s data centre landscape. By addressing challenges and leveraging opportunities, the country is on track to build a resilient and future-ready digital infrastructure. As data continues to be the lifeblood of modern economies, India’s strides in this sector will have far-reaching implications for businesses and citizens alike.
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