How is the market for Data Centre shaping up in India?|
The data centre market in India has been on an upward trajectory since the last 2 years.This is mainly triggered by the data localization rules that require data generated in India to be stored locally. We are already seeing instances of clamp down under this regulation, where large financial services institutions and social media companies are facing the wrath of regulators for non-compliance.
The largest demand for data centre facilities is arising from global cloud service providers who are the primary driving force behind site selection criteria and ultimate land acquisitions by data centre operators. To supplement, India as the second most populous country in the world, along with an increasing rate of mobile adoption, presents an attractive market for such hyperscalers in determining their capacity budgets for India over the next 5 years. For instance, the island city of Mumbai, which is the most popular destination for establishing data centres owing to proximity to cable landing stations, is expected to see planned capacity augmentation from the current 270 MW to additional 800+MW in the future. In addition, there are approximately 160 acres of land parcels in the micro-market that are being marketed to data centre operators for potential sale and establishment of data centre parks.
India has been in the offing for many global data centre operators looking at Asia expansion. With its large domestic consumer base, and supply saturating in cities like Singapore, there is a shift towards India. This could be to India’s advantage, which should be capitalized by appropriate infrastructure support from the Government. We have seen creation of India platforms by some large global operators in the past couple of years. India has the potential to become a regional data hub, and this can only materialize with concentrated efforts from all stakeholders.
Can you please share with us investment inflows (domestic and FDI) in Data Centre in the last three years?
Indian Data Centre industry has largely attracted international capital till date. With the growing prospects, domestic private equity is also gearing up to enter the fray. 2021 has been a mammoth year for the industry. While the actual deployment of private equity has been lower in 2021 (at $150mn), there are 2 large platforms announced this year viz. Everstone-Yondr platform of $1 bn and Brookfield-Digital Realty platform of $2 bn. Further, hyperscalers are also committing to invest in digital infrastructure in India. For instance, Google has committed to invest $10 bn and AWS proposes to invest $1.6 bn in their two upcoming data centers in Hyderabad.
Liquidity is chasing the sector and we can expect more announcements next year. The trend is shifting towards creating platforms that are directed towards a future REIT listing.
We are witnessing Data Centre clusters in Tier I cities and state capitals; it is still to gather pace, say in Tier II and Tier III cities. Your comments
Large data centres are looking to primarily set up facilities in major cities to service most of India, and probably other regions in Asia as well in future. Establishing data centres in multiple cities is expensive given the cost of laying inland fiber optic cables from the nearestpaths. Hence, we expect majority of demand to be centred around the large cities viz. Mumbai, Chennai, Noida and Hyderabad followed by Bangalore, Pune and Kolkata. Having said that, there are certain services where operators will need to ensure minimal to zero latency. This is mainly for edge services such as autonomous vehicles, smart cities, IoT applications for home or industries, surveillance, gaming, etc. In such scenarios, there is merit in storing data close to end users. Further, the data requirements of Tier II cities are on the rise because of a decentralised workforce, which could also increase demand for rapidly deployable smaller colocation data centres built closer to smaller cities. We are already witnessing some traction to set up small data centres,of sub 2 MW capacities, in Tier II cities for this purpose. Although the scale is expected to be limited in the immediate future.
What are the tweaks needed in government policies and regulations for a shift towards Tier II and Tier III cities?
There is merit in envisaging the long-term impact of data centres while formulating policy. Many global cities have paused new construction of data centres within the city to divert resources such as power and water for other basic needs as well as to focus on environment sustainability. Taking cue from these global trends, India can introduce provisions for fiscal and non-fiscal incentives for development of data centres away from urban agglomerations. However, this requires credible and consistent infrastructure of fiber and power. The Government can identify specified clusters around the country, by factoring the technical criteria elaborated earlier, and create a policy for data hubs in those clusters. Implementing common minimum building codes to ensure safety, security and sustainability is also an important policy to be considered. Data centre operators and hyperscalers are large off-takers of renewable energy globally. We are seeing a similar trend in India as well. The demand for renewable energy is anywhere between 50-100% of the envisaged capacity of the facility. Creating incentives to renewable energy developers or ensuring a simplified power policy and smooth regulatory approval processes for offtake can help the industry considerably.
What are the challenges facing Data Centre providers in India?
One of the key challenges facing data centre operators today is land acquisition. The technical criteria evaluation for data centres are extremely stringent. Some of the factors include proximity to power substation, fiber path, soil and air quality, risks of natural disasters, distance from oil terminals or mass rapid transport systems, distance from residential locations, etc. Satisfying all or most of these criteria, can be extremely challenging in India, given that most existing availability zones are in erstwhile industrial locations that are rapidly becoming mainstream. This makes options limited and land prices sticky. Add to that, possible complexities in land title. This has become a pressing concern of data centre operators. Land prices in some micro-markets such as Navi Mumbai and Ambattur (in Chennai) have shot up almost 3x in just over 3 years. Secondly, local regulatory approvals can be time consuming and can create a bottleneck in commissioning timelines for data centres. A simplified single window clearance to fast track permitting can go a long way in increasing global confidence. Thirdly, data centre is a power guzzling industry. Although power may not be an immediate concern, very soon we will see a huge uptick in demand for power. This could add strain on certain states to be able to supply uninterrupted power in large capacities. We will require a robust generation and transmission infrastructure to meet this critical requirement. While states are supportive and co-operative in committing to such requirements, the actual implementation will be crucial to sustain industry’s growth.
Will the current growth sustain for the next three years? Your comments
Absolutely! There is an inherent and fundamental driver for the boom in data centre industry in India. In 2020, India consumed about 13 GB of data per month per internet user. Considering around 750 mn internet users in India in 2020, it works out to an aggregate of 110 exabytes of data consumed last year, which is estimated to more than double by 2025. Increasing local data consumption and digital adoption by both households and corporates offer a healthy base demand from both hyperscalers and enterprises for data warehousing. There is a positive momentum amplified by Government policies to support growth, such as the draft Data Centre Policy released in 2020 that aims to propel India into a global data centre hub and promote investments in the sector.
