Growth of data center market in India amid Covid-19 lockdown

Indian data center market is witnessing robust growth in the era of virtualization and cloud computing. The data center market in India is expected to grow at 12% compound annual growth rate (CAGR) from 2019-2024 according to the Synergy Research Group.

The increased use of data consumption and internet bandwidth in the country is primarily driven by expanding the reach of social media and increased use of smart devices. With more and more Indian companies expected to embark on their digital transformation journeys, McKinsey has identified India as the second fastest-growing digital economy and projected that IT and communications sector will double in size by 2025 to contribute $ 355-435 billion to the GDP. COVID-19 led lockdown has accelerated the usage of data resulting in increased demand for bandwidth as well as storage capacities. The government, private sector and individuals including a large student base started using digital means to operate their business or profession. The Government of India initiatives such as Digital India and emphasis on self-reliance and data protection through data localization is expected to increase the volume of data in the country, which will result in an increased demand for the data center and cloud services. In addition, the government is increasingly reliant on data centers for the Government-to-Citizen (G2C) delivery platforms, such as the National e-Governance Plan (NeGP), e-visa, and National CSR Data portal to name a few.

Growth drivers
To minimize operations expenditure and reduce the risk of maintenance and to avoid huge upfront investments many private organizations are moving from captive data centers to colocation/cloud service providers. The services offered mainly include cloud hosting, server hosting and VPS hosting. IT & ITeS, Telecom & BFSI are the largest occupiers of colocation facilities.

The high upfront costs, higher power tariffs, maintenance-related issues, security, and high real estate costs are increasingly tipping the scale in favour of third-Party data center operators. Many companies are investing in the development of data centers in India. Additionally, major cloud service providers are also exploring setting up their own data centers. At present, two operating models that exist in India i.e. Captive and Third Party/Colocation models. Captive is company owned-and-operated service delivery center whereas Third Party/Outsourced data centers are those where companies lease the required space and host services from external third-party service providers.

Data hubs
At present, the data center industry is very buoyant in cities such as Mumbai, Chennai, NCR, Bangalore, Hyderabad, and Pune. India holds immense potential to

become a data center hub in APAC owing to the availability of high bandwidth speed, lower power tariffs and presence of hyper scalers. Additionally, availability of state-of-art infrastructure are likely to fuel the growth of India’s data center market.

New business models are emerging in this business, including colocation services, pay-per-use utility model, built to suit, etc. Location and design, easy scalability, security, infrastructure, sustainable practices and reliable partner are the key determinants for data center demand. In India, a captive data center still has the highest market share however colocation service model is witnessing tremendous growth and is soon expected to be almost equal to captive.

Finance Minister Nirmala Sitharaman recently announced that the government is planning to roll out a data center policy enabling the private sector to establish data center parks in the country. “Data is the new oil” she said. Many state governments such as Maharashtra, Telangana and Tamil Nadu are already offering several incentive schemes for setting up data center parks in their states.

We expect demand for data center space requirement to increase by around 15-18 million sq. ft across the major cities in the next 2-3 years. The Covid-19 pandemic has created a shift towards the adaptation of cloud services that are more secure and scalable. According to NASSCOM, cloud spending in India is estimated to grow at a CAGR of 30% to reach the $7.1 billion in 2022. Increase investment activity is expected from private players. For instance, a Mumbai-based leading real estate developer announced an initiative to invest and establish Data Centers across India. One of the world’s largest Data center and colocation providers, Equinox has announced expansion into India through the acquisition of India operations of GPX Global Systems. In 2019, the US-headquartered Digital Realty partnered with Indian conglomerate Adani group to develop and operate data centers and data center parks. Similarly, many investors are looking to enter this asset class.

The 5G technology, which is likely to be launched in 2021, will push the adoption of IoT-enabled products in the Indian market. The market for big data and IoT is still in the nascent stage of growth. However, it has huge potential to be the strongest driver for data center investments in the Indian market. ToI