India’s data centre (DC) operational capacity is projected to increase significantly, growing from 1,150 megawatts (MW) in December 2024 to 2,000-2,100 MW by March 2027, according to a report by ICRA. This growth is fueled by increasing data usage, data localisation initiatives, and the rapid expansion of cloud computing and artificial intelligence (AI) workloads.

Investment Plans and Expansion Pipeline

Indian data centre operators are expected to invest a substantial Rs. 2,00,000-2,30,000 crore (US$ 22.91-26.34 billion) in expanding their infrastructure, with a development pipeline of 3-3.5 gigawatts (GW) scheduled for completion over the next seven to 10 years. This growth comes as part of the country’s efforts to meet rising demand for digital services and comply with data sovereignty regulations.

Key Locations: Mumbai, Chennai, and Hyderabad

A major portion of the upcoming data centre facilities—75%—will be concentrated in Mumbai, Chennai, and Hyderabad. Among these cities, Mumbai is expected to emerge as the preferred location, owing to its proximity to a high number of landing stations, which are essential for international data connectivity. This trend reflects global patterns where major data hubs are emerging in high-demand urban centres.

Role of Hyperscalers and Technological Advancements

The demand for data centres is being driven by hyperscalers, which are large-scale cloud service providers investing in artificial intelligence (AI), machine learning, and the Internet of Things (IoT). Global trends show multiple 300 MW plus deals being signed for AI workloads, which are expected to be a major driver of growth in the Indian market. Additionally, the ongoing 5G rollout further boosts the need for data storage and processing.

Challenges: Increased Competition and Rental Rates

While co-location services account for 80-85% of DC revenues, increasing competition among data centre developers—which have grown from five developers in 2019 to 18 in 2025—has led to a moderation of rental rates. As hyperscalers gain greater negotiating power, this could impact the return on investment (ROI) and payback periods for data centre developers in the medium term.

Regulatory Support and Future Growth

Despite these challenges, ICRA remains optimistic about the future of India’s data centre industry. The report highlights the favourable regulatory policies and the infrastructure status granted to the data centre sector. This status is expected to foster continued investment and growth, supporting the industry’s expansion over the next decade.

As India continues to embrace digital transformation, the demand for data storage and processing capabilities is set to increase, positioning the country as a key player in the global data centre market.

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