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India, poised to be the main data centre growth hub for the next decade

The investment explosion across Indian data centre market over the last two years is expected to continue for some time. With a USD 10 billion investment in the pipeline, the industry will double in size over a decade.

COVID-19 has provided a major impetus to the data center industry in India. The growing reliance on digital connectivity for working, learning and playing has led to a sharp rise in data usage. FY21 saw a sharp 38 percent rise year-on-year in India’s data consumption. It is expected to hit 25 GB per month, with total data traffic at 21 exabytes per month by 2025. Crisil expects the industry to log a rapid 25-30 percent CAGR to USD 4.5-5 billion by FY25.

Enterprises be they SMEs or larger corporations are increasingly using digital platforms and cloud computing to reduce operational expenditure. The Digital India initiative is also driving increased use of data services. The upcoming launch of 5G, emerging IoT use cases and AI, are also driving growth. Demand is likely to be driven by data localisation laws and IT infrastructure upgrade across enterprises and government departments.

The rising demand led the data center players and developers to pursue ambitious expansion plans. 2020 saw M&A deals estimated at USD 400 million in this sector. The Indian market is forecast to 1007 MW by 2023, from the current 525 MW, translating to a greenfield real estate development opportunity of 6 million sq ft.

India currently has 126 third-party data centres (colocation or hyperscale) spanning 7.5+ million sq. ft, and a cumulative IT power capacity of 590+ MW. “These third-party centres are owned/operated primarily by 53 players, while the capacity is concentrated among the top 12 players who operate 95 percent of the total IT power capacity in the country,” says an Anarock-Mace report.

The data center market is concentrated in just a few regions. Mumbai leads the pack, accounting for 45 percent of the total capacity. This trend is expected to continue with Mumbai planning to further add 267 MW between now and 2023. The financial capital alongwith Chennai are anticipated to see a 60 percent increase in capacity, with NCR, Bengaluru and Hyderabad to follow. Once 5G is rolled out, it will enable new applications requiring low latency and high reliability. Data centres will have to be upgraded as per the new technology and, hence, their expansion is more likely to be concentrated across metros. But tier-2 cities will also see demand for smaller colocation facilities. Various states have been providing incentives for data center industry as they want to join the next leg of technological change. Packages of data centre-based incentives have been created. These could be in the form of tax benefits on land or equipment or a business-friendly climate when site acquisition and initial power supply may occasionally prove challenging outside of established industrial park areas.

Rachit Mohan
Head,Data Center Advisory-India and co-head Office Leasing Advisory
Mumbai, JLL

“The demand momentum which picked up pace in 2020, continues to grow unabated. The Indian data centre industry witnessed 46.4 MW absorption during H1 2021 —equivalent to 90 percent of the supply addition during the period (H1 2021), indicating robust absorption growth. Banking and financial services are adopting hybrid options to meet digital growth. Home-grown video and gaming platforms in midst of robust user growth are also fuelling the data centre industry demand. Furthermore, telecom players are formulating the rollout of 5G which is expected to drive exponential growth in data consumption.”

B Thiagarajan
Chairman CII Western Region and Managing Director
Blue Star Limited

“The converging trends, adoption of cloud-based services and the Indian government’s policy to make data localization mandatory are expected to lay a strong foundation for data centers in the country. The Government of India is also planning an incentive scheme of `12,000 crore to encourage companies to set up data centers in the country. These factors collectively are expected to boost investment in data centers in the medium and long term. As the data center landscape continues to evolve, India’s data center industry is expected double in capacity by 2023 driven by digitalization and rising cloud adoption.”

Sharad Sanghi
Chairman, CEO of Western Region Task Force on Data Center and CEO
NTT Limited in India

“As the digital economy expands, captive data centers are making way for large, third party operated facilities. Indian businesses are increasingly adopting the cloud. Most industry pundits believe that there will be hybrid clouds; so, while there will be room for private cloud, a lot of applications are moving to public cloud. Multiple players are scaling up investments in the country. What we’ve seen in the last couple of years is unprecedented. The Center,and virtually every state is coming up with favorable policies to attract datacenter investments, resulting in tremendous growth for the entire ecosystem.”

Data-centre operators are adopting large land acquisition strategies. Singapore’s STT has long been the largest operator in India with roughly a quarter of capacity. NTT is doubling its capacity in India in the next 2-3 years at an investment of `15000 crore. The company has taken nearly 100 acres of land in Mumbai, Chennai, Bengaluru and Greater Noida. Each data center is expected to cost USD 100 million. NTT has over 1.5 million sq ft in operation and 150 MW capacity spread over 10 data centers.

2021 saw the entry of newer players. Apart from Brookfield and Digital Realty having formed an India-specific venture and plan to invest USD 2 billion, Bridge Data Centres, Colt Data Centres, and Princeton Digital Group are developing their first Indian campuses in Mumbai, replicating a successful model formed via other builds across Southeast Asia. Web Werks received a recent investment from Iron Mountain and Adani has teamed up with EdgeConneX, with both planning to develop in most primary markets in coming years. REIT Equinix signed a deal in 2020 for their first foray into India, with the acquisition of the 19 MW local operations of GPX, Mumbai for USD 161 million. Yotta Infrastructure (backed by the Hiranandani Group) chose Mumbai for their first location of 50 MW, and others are coming in Chennai, Delhi, and Kolkata. Many of these large projects are designed for major cloud services, with Amazon Web Services, Microsoft Azure, Google Cloud, Tencent, and Alibaba all present.

In Bengaluru, two clusters have emerged with Electronic City (ESDS, Sungard, Sify, NTT) and Whitefield (Nxtra Data, Evoque, STT, NTT also) each with a full complement befitting the power of the IT sector in both areas. Adani Group, Mantra Data Centers, and Web Werks have also proposed to invest about `8,000 crore in data centres in Karnataka.

With NTT, Yotta Infrastructure, AdaniConneX, and Reliance Jio (who has plans for a USD 1 billion campus), the NCR is closing on a collective 55 acres of land for new builds over the last eight months. STT currently has three locations in market (and recently completed a major 360,000 square foot lease with DLF), and NTT, Sify, Nxtra, NxtGen, and a variety of web hosting firms all operate facilities.

Chennai (after Mumbai) offers the advantage of the huge number of undersea cables. The five current cables will shortly be joined by the MIST system in 2022, connecting both Mumbai and Chennai to Singapore and Ngwe Saung in Myanmar, thus providing additional linkage to the busy Southeast Asia region. Yotta, CtrlS, Princeton Digital, STT, and NxtGen have announced plans to launch new campuses in coming months. Ascendas India

Rahul Dhar
Country Head- Datacenters
Microsoft Corporation

“There are very few discussions on how the data center’s customer can invest in technologies to reduce energy consumption. For example, elongate the use of semiconductors or take measures to elongate the life of a server and hardware from three to five or seven years. Also, how can we better recycle hardware in an environmentally friendly manner. Another important concept, that is very relevant for the Indian ecosystem, with DCs concentrated in Mumbai, Chennai and Delhi is that many modern cities as Amsterdam and Singapore have almost stopped the development of new data centers. Data centers are sucking the power of entire cities.”

Kamal Nath
Sify Technologies
“Mumbai is the data center capital of India today. Of 240 megawatt added in the last three years, 50 percent has been added in Mumbai. And the capacity is expected to double to 410 megawatt by 2023. The Navi Mumbai belt, from Airoli to Mahape is a new hotbed. The success of Mumbai has inspired the rest of the country. Data center hubs are emerging in Chennai, NCR, Hyderabad, and Bengaluru. New players have entered the market including real estate companies and players.From an Indian perspective, against the current capacity of 405 megawatt, the projected capacity is 750 megawatt by 2023.”

Prasanna Sarambale
CEO – Data Center, IMEP and Head Group BD
Sterling and Wilson Pvt. Ltd.
“There is no second thoughts on why we are in a position to be leaders in the APAC region. It takes USD 8-10 million per megawatt to construct a data centre in Singapore and Dubai versus USD 3-4 million in India. Secondly, India is unique as 90 to 95 percent of component manufacturers are based in the country. And thirdly, with the International Solar Alliance initiative first proposed by Indian PM Modi, India’s well-acknowledged leadership in solar will become a huge advantage to the industry as it progresses. And last, but not the least, the 1.4 bilion huge Indian population offers a captive market waiting to be encashed.”

Sanjay Bhutani
Adani Connex

“Securing clean, reliable, redundant power at competitive price points is a key resilience to a data center facility. Our success mantra lies in reliable power at the best possible rates. Scale is gaining tremendous prominence. We see huge growth not only in Navi Mumbai but also in Chennai, Hyderabad and Noida, that are looking at building large self-sufficient data equipped with related amenities as fibre, power, and speedy approval processes. Inefficiency can be eliminated hugely where the cloud player and enterprise reside in one campus, not yet found in India. The role of unrestricted banking cannot be undermined. Backed by the central government’s directive, some states have taken steps and others are following suit.”

Mohan Chainani
Chairman & CEO
Mantra Data Centers
“The data centre segment is an extremely capital intensive one. International investors need to have confidence in the Indian tax system. The central and state governments must consider the data centres as separate from the IT parks and call centres, and have more investor friendly norms when deciding tax levies, duty exemptions, FDI policy, stamp duties, tax holidays, dividend retention etc. For instance, there must not be any taxes levied for inter state energy transfer. Energy is a huge component in a data center, and taxes levied when energy is produced in Rajasthan for a data centre located in Uttar Pradesh is highly unreasonable.”

Somen Mathur
Director Engineering

“5G and the digital economy are the obvious key factors driving infrastructure. From an infra­structural standpoint, digital trans­formation is creating multiple distri­bution layers, and this needs to be spread across. Secondly, I would like to leverage environmental conditions, adding efficiencies to the infrastructure, as operating the large power business brings huge challenges. If there are less constraints of setting up data centers, we would prefer to set up where we can leverage maximum from the environment. Multi-tiering is what providers like us look for. And lastly, data centers are going to be more driven from an application state. Application availability within a data center, hugely improves capital efficiency.”

Trust is also looking to expand its data centre business in Hyderabad and Chennai as is RackBank, currently operating in Indore developing 4.35 million sq ft in Chennai.

Pune has Nxtra, STT, and Web Werks alongwith an array of local web hosting firms; Hyderabad has STT, Sify and CtrlS, and now Amazon with its recent acquisition of three large sites for constructing a full region for AWS. Microsoft is looking to invest USD 2 billion and National Payments Corporation of India USD 70 million; Kolkata has small deployments of Sify, and STT, and Yotta Infrastructure and AWS in the fray.

Anarock-Mace sees USD 9.5 billion of capital forthcoming into Indian data centres. Cushman & Wakefield pegs the figure at USD 11.4 billion, with 65 percent investment expected from global firms.

The Government of India is targeting an investment of `3 trillion in the next five years as part of the hyperscale data centre scheme and is planning to provide between 3 percent and 4 percent of capital investment as incentive to companies, along with real estate support and faster clearances. The quantum of the incentive is still being discussed, and once finalised will be sent to the Cabinet for approval.

The aim is to make India a global data center hub by conferring infrastructure status to the industry. The RBI’s mandate that all financial services data belonging to Indians has to be processed and stored locally is providing the requisite impetus. In addition, the Data Localisation Bill is being reviewed for personal data protection and stakeholder considerations.

Apart from the government, the power generation and distribution firms will need to keep investing and improving the infrastructure. DC operators are tying up for renewable energy power contracts and introducing sustainability measures across the DC operations.

India’s renewable energy capacity at 90 gigawatts accounts for 25 percent share of the installed power capacity and provides tremendous scope for development of green data centers. The DC industry is expected to increase its pace of sustainability in sync with global trends.

With billions of investments in the pipeline, coupled with the technical acumen and operational expertise of the largest global cloud service providers, like Google Cloud, Microsoft Azure and Amazon Web Services, India is clearly heading toward the highest level of sophistication.

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