India is fast emerging as a data center hub with the explosion of data. Strong growth in data consumption has catapulted the industry to its current position. The current numbers and future estimates both are promising and look real going by the fledgling industry trend. Every digital interaction creates new data which is stored in Data Centers. From train tickets to airlines, from gas connections to local grocery stores to patient files, more data is generated every microsecond. The average consumer data consumption is ~ 25 GB per month in India. As the country creates unique digital infrastructures like CoWIn, ONDC, Aadhaar, and UPI, the ecosystem to save and store them securely becomes equally important and sensing the demand, leading global data centers are making a beeline to India as well as the domestic companies are keen to prepare their business cases. All these give the potential of the Indian data center market a stark visibility, drawing investors, and industry leaders to tap the nascent sector here.
At the enterprise level, the growth is more intense being driven by organisations digitizing their core services, customer service-centric platforms, and developing smart factories for optimal manufacturing capacity, which is leading to an exponential increase in data produced and consumed.
“India has one of the largest user bases, and almost every region of the country is now being connected through 4G and 5G networks, and this easy and affordable access to high-speed internet is set to drive growth for digital-first businesses in the visible future. As a result, there is humongous generation of data, and a proportionate surge in demand for data centers across the country, states Shekhar Sharma, CEO & MD, NTT Global Data Centers & Cloud Infrastructure India, .
Insatiable digital demands driving growth
The demand is unmatchable currently as the daily life of Indians –social, financial, political, and personal all revolve around data, and therefore a country of 140 crore people makes it a compelling case for any business to ignore these trends.
Dr. Sudatta Kar, VP, Head of Engineering, Capgemini Engineering, India Spokesperson explains why the data center number is rising.
“There is a huge demand for data centers due to increasing reliance on digital services and transformation. IoT-enabled smart appliances, wearable devices, and industrial sensors generate huge amounts of data that must be collected, stored, and processed, same with streaming devices, online gaming, and social media platforms”, she says.
And it’s not just the private sector, the government is also fast emerging as a major driver behind the data center surge.
“Public sector undertakings and other key government enterprises are likely to move to third-party colocation DCs due to an increased focus on digitization and e-governance to ease operations. Increasing focus on e-governance, is likely to emerge as a key demand driver”, opines Anshuman Magazine, Chairman & CEO, India, real estate consultant CBRE.
Telecom regulator TRAI which earlier sent its recommendations to the Department of Telecom to ensure the orderly growth of the sector and remove bottlenecks says India is catching up with global peers.
All global majors are now present in India lured by the digital aspirations of citizens and governments alike. And they feel the action has started.
Singapore-based ST Telemedia GDC which has announced investments of more than $1 billion over the next 3-5 years years thinks the digitalization of India is the biggest digital growth story in the world. “India is developing an acknowledged world-class digital public infrastructure – the India stack. Aadhar, UPI, CoWIN, now ONDC (Open Network of Digital Commerce) and further developing. India’s digital infra story of which, datacenters are the bedrock, is just about taking off, Sumit Mukhija, CEO of STT GDC India underlines.
In fact, not just India, the entire South Asia is witnessing a surge of data centers as an asset class. “Data centers are forming a rising asset class in South and Southeast Asia. Rapid digital transformation, accelerated by the pandemic, is fueling a surge in demand for data processing and data storage capacity among consumers and enterprises alike,” an S&P Global Market Intelligence unit report said earlier this week.
The data center capacity in India, Indonesia and Malaysia is likely to increase at a compound annual growth rate (CAGR) of between 10-25 percent over the next five years, the S&P report stated. This is higher than the growth of an industrialized city nation like Singapore.
On the capacity side, in India, the industry has doubled to 722 MW in 2022 from 350 MW in 2019 registering a robust 27% CAGR, according to global real estate consultant JLL.
Rachit Mohan, Head – Data Center Advisory, India, JLL, points out Hyperscale cloud service providers have been major drivers of data centers. DC industry witnessed nearly 4 times growth in demand from hyperscalers during the 2018-22 period as compared to the previous 13 years. Going ahead, Hyperscale pre-commitment of 350 MW during 2023-25 reflects strong demand growth for DCs.”
Numbers and Data speak volumes of the sector that are just upwardly heading, showing no signs of a pause.
“India is the 13th largest data center market, envisaging 45 new centers encompassing 13 million square feet and 1,015 MW by 2025. An industry valued at $4.35 billion in 2021 is set to burgeon by 132% to $10.09 billion by 2027. With over 700 million internet users by 2022, the country’s digital momentum surpasses even the United States”, says Manoj Paul, Managing Director, Equinix India which is the local arm of Equinix, Inc, California, that specializes in Internet connection and data centers, a leader in global colocation data center market share, with 248 data centers in 27 countries on five continents.
As India gains priority, all of them have tailor-made solutions for India. “We are committed to supporting India’s digital transformation with the Microsoft cloud and continue to grow our presence in India, with two data center regions that exist today and a third coming soon,” says Himani Agrawal, Country Head – Azure, Microsoft India.
The importance of the Indian market is such that NTT has become the first Indian data center operator to build a captive submarine cable.
Sharma adds NTT has been rapidly scaling its infrastructure in Chennai, Bangalore, Delhi NCR. It has already operationalized 205 MW of data center space across 16 facilities, and many new data centers are being built to more than double the capacity by the end of 2024.
Last year the Japanese conglomerate had announced its plans to invest $2 billion over the next four years in hyperscale data center campuses and undersea cables.
Parveen Mittal, VP and General Manager, Celigo feels the reason is the adoption of data-intensive technologies such as AI, IoT, cloud computing, and digital transformation, which needs trustworthy data management, processing, and storage solutions.
“E-commerce, online services, and remote work; to ensure smooth operations and positive user experiences, businesses prefer resilient data centers, rather than creating on server infrastructure, that needs high capital expenditure and maintenance. In addition, businesses are looking to store regional data in local data centers to provide better service and meet data privacy and localization requirements”, he underscores.
Celigo is an Integration Platform (iPaaS) that connects applications and automates processes with support and recommendations from real human experts.
The Gold Rush
But the growth has not been overnight. Way back in 2019, oil-to-telecom conglomerate chairman Mukesh Ambani had said “Data is the new oil’ a hint of the tsunami of data-driven revolution about to take place in India.
In August Ambani’s Reliance Industries announced it would invest up to Rs 1000 crore in building data centres in the country along with Canada-based Brookfield Infrastructure and Digital Realty under the brand name ‘Digital Connexion’. The JV’s first 20 MW greenfield data center, on a 100 MW campus in Chennai, is expected to be completed by the end of 2023 and another 40 MW data center is coming up in Mumbai.
His telecom counterpart Sunil Mittal’s Airtel already has 120+ data centers and last month it said Nxtra will purchase 23,000 MWh of renewable energy by Q4 of FY24 to reduce carbon footprint indicating its long-term plans.
Reliance Jio didn’t respond to queries on its data center plans and current numbers.
“Nxtra is offering India’s largest network of 12 large and 120 edge data centers strategically located at 65+ locations across India. With an investment of Rs 5000 crore committed over the next few years, Nxtra remains steadfast to expand India’s digital ecosystem through a capacity expansion to over 400 MW.”An Airtel spokesperson told ETTelecom.
He added the data center industry in India has witnessed a remarkable surge in development fueled by the government of India’s digital initiatives. Increasing digital consumption and rising adoption of new new-ageh such as cloud, IOT Big data are driving growth for the industry.
Vodafone Idea through its business arm Vi Business uses its partner Yotta’s data centers, cloud infrastructure, and service delivery capabilities to serve Indian enterprises. At the time of publishing, Vi’s response was still awaited on the future growth of this business.
As the space heats up, not just telcos, non-telecom companies see potential here and have drawn up long-gestation period plans. AdaniConneX, a 50:50 joint venture of Adani Group and EdgeConneX, is in the process of developing 1 GW national data center platform starting with Chennai, Navi Mumbai, Noida, and Hyderabad. It has already announced its roadmap aiming a slot among top three data centres by 2030. It has two data centers coming up in Chennai and Noida, with an aggregate capacity of 67 megawatts (MW). Recently, the company executed a $213 million senior debt facility with participation from international banks to finance its under-construction data center portfolio of 67 MW in Noida and Chennai.
Others are joining the growing list. Blackstone-backed Lumina Cloud Infra plans to develop 600 MW data center capacity. Lumina Cloud Infra recently started the construction of its first data center in Navi Mumbai, with plans to exceed 60 megawatt of critical IT load.
UK-based Colt Data Centre Services (DCS) has announced to opening a unit in Chennai and invest $750 million to scale up the capacity in its inaugural Mumbai unit scaling up to 120 MW, as it seeks one-third of the company’s business in five to seven years from India. The DC wants to support the increasing demand from hyperscale cloud service providers and large enterprises in India.
This is serious business with execution, planning, and RoI-driven all success mantras alongside. The launches and expansions are now just numbers and show no signs of a pause. Experts say the actual growth may be yet to begin. India accounts for roughly 14 to 15% of global internet users, whereas data center is only 6% leaving a huge gap there. As the number of Internet users goes up, the young population of India is likely to drive the demand for OTT platforms, mobile usage, payment gateways, and gaming and entertainment.
Explains Utkarsh Sinha, MD, Bexley Advisors a boutique investment bank firm “ We feel we are seeing the tip of the iceberg in data center capacity in India currently, which is already projected to grow upwards of 10% CAGR; if 5G and other technologies usher in the expected age of remote compute and IOT, data center usage needs will explode exponentially. So will the need for data-center density and distribution”.
FDI in Data Centers
As data centers are capital intensive and entail greater technical know-how investors are increasingly partnering with data center operators, who are ramping up expansions in the country. Global hyperscalers too are viewing India as a prime market for expansion to capitalize on the increasing demand from cloud usage. During the period under review (2019- H1 2023), data centers accounted for about 51% share in the total investments in alternatives.
“2023 has seen some landmark investments and pre-commitments from global hyperscalers in India’s data center space, as they are looking to set up their facilities to suit their requirements”, said a report from Colliers, a real estate and data center management agency.
Speed Breakers Ahead ?
The road to this uptick is not without pitfalls. As India sharpens its digital infrastructure stack and gears up to expand it to include more verticals, the aspirations of Indians will only grow to be connected. Any demand that shows no signs of satiation can be a pressure point on expansions. Scaling up will add up to overhead costs of operation as well.
Sachin Bhalla, VP – Secure Power Division, India and SAARC, Schneider Electric says “demand for data storage and processing has become insatiable making it more challenging than ever to operate and scale these facilities. Continued pressure to cut operating costs, increasing demand for more sustainable facilities, and a growing shortage of talent interested in and qualified for managing data centers, infrastructural gaps, confusing laws, and hazards associated with the supply of electricity must be solved. Supply chain disruptions and skilled manpower shortages are likely to push up construction costs.”
Experts warn ensuring compliance with Govt regulations and personal data protection laws, and maintaining data security consistently of this scale will be difficult.
There are serious challenges here, agrees. Maheswaran S, Country Manager, Varonis Systems Inc, a data security and analytics enterprise. He is of the view that safeguarding data is one of the biggest challenges.
“Companies must implement numerous critical security measures to protect consumer data and comply with government rules and data protection legislation. Strong data encryption mechanisms for both storage and transmission, tight access controls with multi-factor authentication, and regular security audits to discover weaknesses are among these,” he says.
The huge amount of power, water consumption and continuous connectivity is a must for DCs’ survival. And this could be a major problem.
“The availability of reliable and affordable power and sub-sea cables for connectivity are the key challenges faced by the industry. The net-zero targets adopted by data centers as well as by end-users like cloud service players have meant increasing usage of renewable energy. However, its availability is limited, Rachit Mohan of JLL states.
The data center sector in India confronts a few challenges such as power availability, cooling options, and site acquisition processes, says Surajit Chatterjee, MD, CapitaLand Investment, Data Center Group India. Based in Singapore, CLI is a global real estate investment manager (REIM) with a strong Asia foothold.
Aranb Mitra, CEO, DigiBoxx, a cloud storage service company cites cost of digital devices and bandwidth to keep the data centers running can be a real dampener.
“Our largest challenge currently is the cost of the Digital Drives and other related products. India isn’t a manufacturing hub for these kinds of products, so our dependencies on other countries are significantly higher. And therefore, the cost. We have to somewhere get into bringing down the cost of Digital Drives and Bandwidth,” he says.
Chatterjee endorses this . “The data center sector confronts a few challenges such as power availability, cooling options, and site acquisition processes,”, he shares.
The problems inherent to the data centres’ operations will always be there in addition to upcoming challenges like ESG. Pradeep Balijepalli, Chief Commercial Officer, Honeywell Building Technologies India told ET Telecom “Data centers are grappling with rising electricity and energy costs while striving to meet stringent sustainability targets. They are facing tougher internal environmental, social, and governance (ESG) directives and more complex regulatory landscapes. Another challenge impacting the sector is rising operating expenses (OpEx) and the looming talent. ” He, however, adds all these problems are solvable and don’t take away the sheen of IDCs.
There are legal safeguards pressure as well.
Personal Data Protection Bill 2023 is expected to increase the maturity curve as to how enterprises will manage personal data. Given the requirements of the Chief Protection Office, a penalty of Rs 250 crores amongst others, organizations will look at this in a much more structured way. This also brings tremendous responsibility for managing this data in a very secure and safe manner, Siddhartha Tipnis, Partner and Technology Sector Leader, Deloitte India.
But these are problems with any growing industry. Let the good times roll. The party has just begun, and the deceleration is not happening so soon. Its a journey that has just taken off.
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