Is India about to witness a data centre boom?

India will see an addition of at least 28 large hyperscale data centres over the next three years, a new report, jointly penned by real estate services company Anarock, and Mace, a London-based consultancy and construction company, has said.

Market intelligence firm International Data Corporation defines a data centre as “hyperscale” when it exceeds 5,000 servers and 10,000 square feet. Some hyperscale data centres can host even millions of servers. In India, the demand for hyperscale data centers has shot up in the last two years as more businesses are moving their IT infrastructure to the cloud, especially driven by increasing demand for app-based services and OTT platforms.

The Anarock-Mace report comes on the heels of a new data centre policy that the Ministry of Information and Technology is working on, and a draft of which has been released to the public for comments. The government extended the deadline for the same to November 30.

This policy draft, floated on November 5, proposes to promote domestic start-ups, MSMEs, and other Indian IT companies, and provide impetus to indigenous manufacturing of IT and non-IT equipment. According to the ministry, this new data policy aims to meet the data security needs by promoting investments in trusted (safe and secure) data centres in India with an aim to give fiscal and non-fiscal incentives to the companies in the segment, along with various other measures to boost growth in the sector.

The Anarock-Mace report argues that these hyperscale data centres will span over 16+ million sq. ft. with at least 1,400+ MW of IT power capacity. This is nearly "0.6 million sq. ft. and 50 MW per facility on an average per hyperscale data centre,” it added. It further reasons that India will see a major growth in the data centre industry, driven by increased data consumption and policy incentives.

A recent report by Crisil, similarly, had pointed out that India’s data consumption has seen a sharp 38% rise year-on-year for FY21 on account of Covid-19. Crisil expected the industry to log a rapid 25-30% CAGR to $4.5-5 billion by FY25. Growth drivers include an exponential surge in data being generated and growing need for local data storage in line with the government’s thrust on data localisation.

As a result, the investment in the industry has also gone up. As per the Anarock-Mace report, in 2020, the Indian data centre industry attracted close to $977 million in private equity and strategic investments since 2008, of which nearly 40%, or approximately $396 million were infused between January-September 2020 period alone.

The report also argued that the upcoming supply of data centres is likely to be concentrated on tier-1 cities, especially after the 5G rollout. But the increased data consumption will also be beneficial for tier-2 cities which will, in turn, generate demand for smaller colocation facilities. A colocation data centre is basically a large facility which can be rented out to third parties, for server or other network-related space.

Once 5G is rolled out, it will enable new applications requiring low latency and high reliability. Data centres will, thus, have to be upgraded as per the new technology and, hence, their expansion is more likely to be concentrated across cities. According to the report, Mumbai and Chennai will together witness 60% of total future capacity, with NCR and Hyderabad contributing another 33%.

"India’s data consumption is expected to hit 25GB/month by 2025—total data traffic in the country likely to touch 21 EB (exabytes) per month. The supply is expected to be concentrated amongst Mumbai and Chennai, followed by NCR, and Hyderabad also getting a fair share of interest," the report said.

Companies like Yotta Infrastructure, NTT-Netmagic, STT GDC India, Sify Data Centres, CtrlS, etc. are building hyperscale data centers and data center parks in India, and the new few years will see the entry of newer players like Adani Group, Colt DCS, Singapore-based Ascendas-Singbridge Group, etc. “While India has been seeing a massive digital thrust since 2014, the current government’s data localisation policy has paved the way for hyperscale data centres to handle the increasing data consumption," Anuj Puri, chairman, Anarock Group said in a statement to the press.

The Anarock-Mace report, interestingly, argues that these data centres have the potential of becoming one of the most preferred forms of alternative real estate assets, with the focus shifting to large hyperscale developments.

“Data centres as alternative real estate assets providing yield income to large infrastructure investors, and the creation of large platforms between operators, on one hand, and investors/developers on the other. Approximately, $9.5 billion of capital is in various stages of being announced, committed or waiting to be committed into Indian data centres," the report said.

Puri explains that hyperscale facilities have clear advantages over smaller colocation centres as they can cater to the huge domestic data warehousing demand-creating operating efficiencies, and thus, pass on cost benefits to their customers. "Smaller colocation facilities will need to reassess their competitive position and may need to repurpose to ensure survival,” Puri said.

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% of the total IT power capacity in the country," Anarock-Mace report said.