According to a Crisil Ratings report, India’s data centre industry is set to more than double its capacity to 2-2.3 GW by FY27. This expansion is driven by the rapid digitalisation of businesses and the increasing demand for cloud storage, particularly with the rise of Generative Artificial Intelligence (GenAI), which demands higher computational power and lower latency than traditional cloud computing. These factors are expected to play a crucial role in stimulating demand for data centres in India over the next few years.

Factors Driving Data Centre Growth in India

Two key factors are primarily fueling the demand for data centres:

1. Shift to Digital Platforms:
   Businesses across India are increasingly transitioning to digital platforms, including cloud services, a trend that was significantly accelerated by the Covid-19 pandemic. This transition to digital services requires a robust data infrastructure, leading to the need for more data centres.

2. Increased Internet Usage:
   The surge in internet usage, especially for social media, OTT platforms, and digital payments, has also played a vital role in boosting demand for data storage and computing power. As more people engage with digital content and services, the volume of data generated has increased exponentially, driving the need for additional data centre capacity.

Growth of Mobile Data Traffic

India has seen a rapid increase in mobile data traffic, with CAGR of 25% over the past five years. By the end of FY24, the average mobile data usage is expected to reach 24 GB per month, with projections indicating it could grow to 33-35 GB per month by FY26. This massive data traffic growth highlights the need for enhanced data storage and computing infrastructure, placing greater pressure on the data centre industry to meet demand.

Investment Requirements for Expansion

To meet the growing demand for data storage and computational capacity, the Indian data centre industry will require an estimated investment of US$ 6.46-7.64 billion (approximately Rs. 55,000-65,000 crore) over the next three fiscal years. This investment will primarily be directed towards building land, buildings, power equipment, and cooling solutions to support the growing infrastructure.

Role of Hyperscalers and Large-Scale Data Centres

The growth of hyperscalers and the increasing demand for large-scale data centres providing cloud computing and data solutions will be key drivers in the sector’s expansion. Hyperscalers, which manage vast amounts of data across multiple servers and facilities, are particularly important for meeting the demands of enterprises and governments. These companies are poised to lead the charge in the establishment of state-of-the-art data centres across India.

Impact of Data Localisation and State Incentives

In addition to growing demand, data localisation initiatives and state incentives are expected to encourage further investment in India’s data centre sector. The government’s push towards data sovereignty and ensuring that data is stored within the country’s borders will contribute to this growth. Incentives provided by states will also help attract both domestic and international investments into India’s burgeoning data infrastructure.

Conclusion

India’s data centre industry is poised for significant expansion, driven by the rapid digitalisation of businesses, increasing internet usage, and the rise of Generative AI. With an estimated investment requirement of over Rs. 65,000 crore in the next few years, the sector will experience growth not only from existing players but also from new entrants. This expansion will play a critical role in supporting India’s digital economy and meeting the needs of businesses and consumers across the country.

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