India’s digital economy is on a meteoric rise, expected to reach USD 1 trillion by 2025. This surge in digital activity is fuelling the rapid expansion of its data centre market, positioning the country as a global player. With a projected market value of USD 4.5 billion by 2025, India’s data centre industry is set to surpass traditional regional hubs like Malaysia, Hong Kong, and Singapore.
This growth is driven by factors such as the proliferation of smartphones, internet connectivity, and digital services, generating massive amounts of data that need storage and processing. Government initiatives like Digital India and the National e-Governance Plan have promoted digitalisation, while favourable market conditions, including cost-effective infrastructure, skilled talent, and a large domestic market, make India an attractive destination for data centre investments.
As companies continue to invest, India is solidifying its role as a critical hub for Asia’s digital revolution, driving economic development and creating new opportunities for innovation and job creation.
What is Fuelling India’s Data Centre Growth?
India’s data centre industry is experiencing rapid growth in 2024, driven by a combination of strategic advantages and increasing demand. The country’s abundance of land and skilled workforce are key factors contributing to this boom.
- Digitisation push. The digital revolution is fueling the need for more sophisticated data centre infrastructure. The rise of social media, online gaming, and streaming apps has created a surge in demand for faster networks, better data storage options, and increased data centre services.
- Internet and mobile penetration. With 1.1 billion mobile phone subscribers, Indians use an average of 8.3 GB of data per month. As more people come online, businesses need to expand their data infrastructure to handle increased traffic, enhance service delivery, and support a growing digital economy.
- Increasing tech adoption. India’s AI market is projected to reach around USD 17 billion by 2027. As businesses integrate AI, IoT, cloud, and other technologies, data centres will become instrumental in supporting the vast computational and storage requirements.
- Government & regulatory measures. Apart from India being one of the world’s largest data consumption economies, government initiatives have also accelerated the ‘data based’ environment in the country. Additionally, states like Maharashtra, Karnataka, and Tamil Nadu have implemented favourable real estate policies that reduce the costs of setting up data centres.
A Growing Network of Hubs
India’s data centre landscape is rapidly evolving, with major cities and emerging hotspots vying for a piece of the pie.
Mumbai-Navi Mumbai remains the undisputed leader, boasting a combined 39 data centres. Its strategic location with excellent submarine cable connectivity to Europe and Southeast Asia makes it a prime destination for global and domestic players.
Bangalore, India’s IT capital, is not far behind with 29 data centres. The city’s thriving tech ecosystem and skilled talent pool make it an attractive option for businesses looking to set up data centres.
Chennai, located on the east coast, has emerged as a crucial hub with 17 data centres. Its proximity to Southeast Asia and growing digital economy make it a strategic location. The Delhi-NCR region also plays a significant role, with 27 data centres serving the capital and surrounding areas.
Smaller cities like Pune, Jaipur, and Patna are rapidly emerging as data centre hotspots. As businesses seek to serve a growing but distributed user base across India, these cities offer more cost-effective options. Additionally, the rise of edge data centres in these smaller cities is further decentralising the data centre landscape.
A Competitive Market
India ranks 13th globally in the number of operational data centres, with 138 facilities in operation and an additional 45 expected to be completed by the end of 2025. Key initiatives include:
- AWS. AWS is investing USD 12.7 billion to establish four new data centres over the next two years.
- Meta. Meta is set to build a small data centre, potentially focused on cache with a 10-20 MW capacity.
- AdaniConnex. In partnership with EdgeConneX, AdaniConnex aims to develop a 1 GW network of hyperscale data centres over the next decade, all powered by 100% renewable energy.
- Google. Google is set to build an 80-storey data centre by 2025 and is in advanced talks to acquire a 22.5-acre land parcel for its first captive data centre.
- NTT. NTT is investing USD 241 million in a data campus, which will feature three data centres.
Data Centres: Driving Digital India’s Success
The Digital India initiative has transformed government services through improved online infrastructure and increased connectivity. Data centres play a pivotal role in supporting this vision by managing, storing, and processing the vast amounts of data that power essential services like Aadhaar and BharatNet.
Aadhaar, India’s biometric ID system, relies heavily on data centres to store and process biometric information, enabling seamless identification and authentication. BharatNet, the government’s ambitious project to connect rural areas with high-speed internet, also depends on data centres to provide the necessary infrastructure and support.
The impact of data centres on India’s digital transformation is far-reaching. Here are some key areas where data centres have made a significant contribution:
- Enabling Remote Work and Education. Data centres have been instrumental in supporting the surge in remote work and online learning during the pandemic. By providing the necessary infrastructure and connectivity, data centres have ensured business continuity and uninterrupted education.
- Fostering Start-Up Innovation. Data centres provide the essential infrastructure for start-ups to thrive. By offering reliable and scalable computing resources, data centres enable rapid growth and innovation, contributing to the expansion of India’s SaaS market.
- Supporting Government Services. Data centres underpin key government initiatives, including e-governance platforms and digital identity systems. They enhance the accessibility, transparency, and efficiency of government services, bridging the urban-rural divide and improving public service delivery.
Securing India’s Data Centre Future
Data centres are the backbone of India’s digital transformation, fuelling economic growth, government services, innovation, remote work, and technological progress. The Indian government’s ambitious plan to invest over USD 1 billion in hyperscale data centres over the next five years underscores the country’s commitment to building a robust digital infrastructure.
To secure the long-term success of India’s data centre industry, alignment with global standards and strategic investment are crucial. Prioritising reliability, efficiency, and sustainability will attract global providers and position India as a prime destination for digital infrastructure investments. Addressing challenges like legacy upgrades, modernisation, and cybersecurity risks will require collaboration across stakeholders, with government support and technological innovation playing key roles.
A unified effort from central and state governments is vital to enhance competitiveness. By fostering a favourable regulatory environment and offering incentives, the government can accelerate the development of world-class data centres. As India advances digitally, data centres will be instrumental in driving economic growth, improving quality of life, and solidifying India’s status as a global digital leader.
The emergence of COVID-19 last year caused a rapid shift towards work and study from home, and a pickup in eCommerce and social media usage. Tech companies running large data centre-based “webscale” networks have eagerly exploited these changes. Already flush with cash, the webscalers invested aggressively in expanding their networks, in an effort to blanket the globe with rapid, responsive connectivity. Capital investments have soared. For the webscale sector, spending on data centres and related network technology accounts for over 40% of the total CapEx.
Here are the 3 key emerging trends in the data centre market:
#1 Top cloud providers drive webscale investment but are not alone
The webscale sector’s big cloud providers have accounted for much of the recent CapEx surge. AWS, Google, and Microsoft have been building larger facilities, expanding existing campuses and clusters, and broadening their cloud region footprint into smaller markets. These three account for just under 60% of global webscale tech CapEx over the last four quarters. Alibaba and Tencent have been reinforcing their footprints in China and expanding overseas, usually with partners. Numerous smaller cloud providers – notably Oracle and IBM – are also expanding their cloud services offerings and coverage.
Facebook and Apple, while they don’t provide cloud services, also continue to invest aggressively in networks to support large volumes of customer traffic. If we look at Facebook, the reason becomes clear: as of early 2021, they needed to support 65 billion WhatsApp messages per day, over 2 billion minutes of voice and video calls per day, and on a monthly basis their Messenger platform carries 81 billion messages.
The facilities these webscale players are building can be immense. For instance, Microsoft was scheduled to start construction this month on two new data centres in Des Moines Iowa, each of which costs over USD 1 billion and measures over 167 thousand square metres. And Microsoft is not alone in building these large facilities.
#2 Building it all alone is not an option for even the biggest players
The largest webscalers – Google, AWS, Facebook and Microsoft – clearly prefer to design and operate their own facilities. Each of them spends heavily on both external procurement and internal design for the technology that goes into their data centres. Custom silicon and the highest speed, most advanced optical interconnect solutions are key. As utility costs are a huge element of running a data centre, webscalers also seek out the lowest cost (and, increasingly, greenest) power solutions, often investing in new power sources directly. Webscalers aim to deploy facilities that are on the bleeding edge of technology. Nonetheless, in order to reach the far corners of the earth, they have to also rely on other providers’ network infrastructure. Most importantly, this means renting out space in data centres owned by carrier-neutral network operators (CNNOs) in which to install their gear.
The Big 4 webscalers do this as little as possible. For many smaller webscalers though, piggybacking on other networks is the norm. Of course, they want some of their own data centres – usually the largest ones closest to their main concentrations of customers and traffic generators. But leasing space – and functionalities like cloud on-ramps – in third-party facilities helps enormously with time to market.
Oracle is a case in point. They have expanded their cloud services business dramatically in the last few years and attracted some marquee names to their client list, including Zoom, FedEx and Cisco. To ramp up, Oracle reported a rise in CapEx, growing to USD 2.1 billion in the 12 months ended June 2021, which represents a 31% increase from the previous year. However, when compared to Microsoft’s spending this appears modest. Microsoft reported having spent USD 20.6 billion in the 12 months ended June 2021 – a 33% increase over the previous year – to help drive the growth of their Azure cloud service.
One reason behind Oracle’s more modest spending is how heavily the company has relied on colocation partners for their cloud buildouts. Oracle partners with Equinix, Digital Realty, and other providers of neutral data centre space to speed their cloud time to market. Oracle rents space in 29 Digital Realty locations, for instance, and while Equinix doesn’t quantify its partnership with Oracle, Oracle’s cloud regions across the globe access the Oracle Cloud Infrastructure (OCI) via the Equinix Cloud Exchange Fabric. Oracle also works with telecom providers; their Dubai cloud region, launched in October 2020, is hosted out of an Etisalat owned data centre.
#3 Carrier-neutral data centre investment is surging in concert with webscale/cloud growth
As the webscale sector has raced to expand over the last 2 years, companies that specialise in carrier-neutral data centres have benefited. Industry sources estimate that as much as 50% or more of the cloud sector’s total data centre footprint is actually in these third-party data centres. That is unlikely to change, especially as some CNNOs are explicitly aiming to build out their networks in areas where webscalers have less incentive to devote resources. It’s not just about the webscalers’ need for space; the need for highly responsive, low latency networks is also key, and interconnection closer to the end-user is a driver.
Looking at the biggest publicly traded carrier-neutral providers in the data centre sector shows that their capacity has expanded significantly in the last few years (Figure 1)
By my estimation, for the first 6 months of 2021, CapEx reported publicly for these CNNOs increased 18% against 1H20, to an estimated USD 4.1 Billion. Beyond the big public names, private equity investment is blossoming in the data centre market, in part aimed at capturing some of the demand growth generated by webscalers. Examples include Blackstone’s acquisition of QTS Realty Trust, Goldman Sachs setting up a data centre-focused venture called Global Compute Infrastructure; and Macquarie Capital’s strategic partnership with Prime Data Centers.
Some of this new investment target core facilities in the usual high-traffic clusters, but some also target smaller country markets (e.g. STT’s new Bangkok-based data centre), and the network edge (e.g. EdgeConneX, a portfolio company of private equity fund EQT Infrastructure).
EdgeConneX is a good example of the flexibility required by the market. They build smaller size facilities and deploy infrastructure closer to the edge of the network, including a PoP in Boston’s Prudential Tower. The company offers data centre solutions “ranging from 40kW to 40MW or more.” They have built over 40 data centres in recent years, including both edge data centres and a number of regional and hyperscale facilities across North America, Europe, and South America. Notably, EdgeConneX recently created a joint venture with India’s property group Adani – AdaniConneX – which looks to leverage India’s status of being the current hotspot for carrier-neutral data centre investment.
As enterprises across many vertical markets continue to adopt cloud services, and their requirements grow more stringent, the investment climate for new data centre capacity is likely to remain strong. Webscale providers will provide much of this capacity, but carrier-neutral specialists have an important role to play.
