The Next Wave of Data Centre Growth: How India is Building the Digital Infrastructure of the Future

by Shrinivas Rao, FRICS, CEO, Vestian

India’s data centre industry is on the cusp of unprecedented growth. While the first wave of expansion was driven by cloud adoption, digitalisation, rising internet penetration, and data localisation requirements, the next phase is expected to be significantly larger and more diverse, driven primarily by the rise of artificial intelligence (AI) and the growing demand for advanced digital infrastructure.

The rapid evolution of the sector in the past couple of years reflects a paradigm shift in India’s digital economy. Data centres are no longer merely facilities for storing information; they have become the backbone of cloud computing, digital payments, e-commerce, content streaming, enterprise technology, and AI-driven applications. Reflecting this transformation, India’s data centre market was estimated at approximately USD 10 Bn in 2025 and is projected to reach nearly USD 22 Bn by 2030. Installed capacity, currently estimated at 1.4-1.6 GW across 164 facilities, is also expected to expand to around 4-5 GW by the end of the decade, with more than 700 MW currently under construction and an additional 1–1.2 GW planned. A significant share of this future capacity is expected to be distributed across both established and emerging markets.

Digital Consumption Continues to Drive Demand

The strongest foundation for India’s data centre growth remains its expanding digital ecosystem. The country has more than 1.23 Bn telecom subscribers and nearly one billion internet users, making it one of the largest connected populations globally. Internet penetration has increased to approximately 65% and continues to rise as affordable connectivity and digital services reach deeper into the country.

India’s rapidly expanding digital population is fuelling an unprecedented surge in data creation. Average monthly wireless data consumption has crossed 25 GB per subscriber, driven by growing adoption of video streaming, cloud applications, gaming, and AI-enabled services. Coupled with the rapid growth of digital payments and real-time transactions, this shift is intensifying the need for high-performance, low-latency networks and significantly expanding the country’s data centre requirements.

AI is Creating a New Infrastructure Paradigm

While digitalisation laid the foundation for growth, AI is rapidly becoming the defining force behind the next investment cycle. Globally, the AI market is projected to approach USD 1 trillion by 2027, with enterprises and governments significantly increasing investments in generative AI, automation, and advanced analytics.

Unlike earlier growth cycles that were primarily driven by storage requirements, AI-led deployments are increasing rack densities and power intensity, fundamentally altering infrastructure design standards across the sector. This shift is transforming the design and operational requirements of data centres. Infrastructure is no longer being built solely for storage and cloud workloads; it is increasingly being designed to support high-performance computing environments capable of handling AI training and inference workloads at scale.

The convergence of AI, cloud computing, and digital services is redefining India’s data centre landscape and fueling the next wave of hyperscale expansion.  As demand for high-density computing accelerates, AI is emerging as a transformative force—shaping facility design, power strategies, capital allocation, and site selection decisions. The result is a new generation of infrastructure built to support the immense computational demands of the digital economy.

Expansion Beyond Traditional Hubs

Mumbai remains India’s largest data centre market, accounting for nearly half of the country’s operational capacity due to its strong international connectivity, established ecosystem, and proximity to major submarine cable landing stations. Chennai and NCR have also emerged as critical hubs serving enterprise, cloud, and government requirements.

However, the next phase of growth is expected to be far more geographically distributed. Hyderabad, Bengaluru, and Pune are witnessing an increase in investment activity driven by robust technology ecosystems, enterprise demand, and scalable infrastructure. At the same time, emerging locations such as Ahmedabad, Visakhapatnam, Kochi, Jaipur, Indore, and Mohali are gaining traction as operators seek new markets that offer lower land costs, improved connectivity, and supportive policy environments.

Tier-II and Tier-III markets currently account for an estimated 60-80 MW of operational capacity and are projected to exceed 100 MW by the end of 2026. More importantly, these markets are attracting significant future investments. Several operators have announced investment commitments exceeding USD 25 Bn across emerging locations, highlighting growing confidence in a more distributed and resilient digital infrastructure network. For instance,  Google’s planned data centre campus in Visakhapatnam reflects a growing confidence in Tier-II cities, signalling that the next phase of data centre growth will extend beyond established metropolitan hubs.

Infrastructure Readiness Strengthens India’s Position

The next wave of growth will depend not only on demand but also on India’s ability to support large-scale digital infrastructure development. Encouragingly, several structural advantages are strengthening the country’s position.

India’s installed power generation capacity has increased from 383.5 GW in FY2021 to 475.2 GW in FY2025 and is projected to exceed 500 GW by FY2027. Renewable energy now contributes approximately 46% of installed capacity, creating opportunities for operators to align growth with sustainability objectives while securing long-term energy availability.

Connectivity infrastructure is equally important. India hosts approximately 17-18 international submarine cables, with landing stations concentrated in Mumbai, Chennai, Kochi, Tuticorin, and Thiruvananthapuram. These gateways provide global bandwidth access, lower latency, and network redundancy that are essential for hyperscale cloud, AI, and real-time digital workloads. Combined with competitive construction costs and relatively lower operating expenses compared to several mature Asia-Pacific markets, these advantages continue to enhance India’s attractiveness as a destination for large-scale digital infrastructure investments.

Capital is Accelerating the Next Growth Phase

Investor confidence in India’s data centre story remains strong. The sector attracted an estimated USD 13-15 Bn in investments between 2020 and 2024, with foreign institutional investors accounting for nearly 80% of the total inflows. Looking ahead, announced investments are estimated at USD 60-70 Bn over the next five years, reflecting growing confidence in the country’s long-term digital infrastructure requirements.

A notable feature of this growth cycle has been the rise of joint venture-led platforms. By combining domestic execution capabilities with global capital, technology expertise, and operational experience, these partnerships have enabled faster project execution, large-scale investments, and the development of hyperscale-ready campuses across multiple cities. As global investors expand their footprint in India’s digital infrastructure sector, such collaborations are expected to play an increasingly important role in future capacity expansion.

Navigating the Challenges Ahead

Despite the strong outlook, sustaining long-term growth will require addressing several structural challenges. As AI workloads become more prevalent, demand for reliable power and efficient cooling infrastructure will increase significantly. Water availability, sustainability requirements, land acquisition, and project execution timelines will remain important considerations for developers and operators.

To address these challenges, operators are increasingly adopting advanced cooling technologies such as direct-to-chip liquid cooling, adiabatic cooling, and immersion cooling, while cities such as Hyderabad are exploring initiatives like the proposed Grey Water Bank to promote large-scale wastewater recycling and support long-term water security.

In addition, ensuring adequate transmission infrastructure, accelerating approvals through a single-window clearance system, and supporting renewable energy integration will be critical to maintaining the pace of expansion. The industry’s ability to balance rapid capacity growth with operational efficiency and sustainability will play a key role in determining its long-term competitiveness.

The Road Ahead

India’s data centre sector is entering a new phase of growth driven by AI adoption, hyperscale expansion, and digital transformation. Tight vacancy in key markets such as Mumbai and Chennai is expected to accelerate expansion into other Tier-I and emerging Tier-II cities, while continued infrastructure improvements and capital inflows are likely to support long-term growth.

As mature Asia-Pacific markets grapple with rising costs, power constraints, and limited land availability, India is increasingly emerging as one of the region’s most attractive destinations for digital infrastructure investments. Supported by strong demand fundamentals, a growing digital economy, expanding infrastructure readiness, and robust capital inflows, the country is well-positioned to become one of the most significant data centre growth markets in the region over the coming decade.

A dedicated National Data Centre Policy could further accelerate sector growth through streamlined approvals, simplifying regulatory processes, and attracting large-scale domestic and global investments. Coupled with proposed tax incentives extending through 2047, it could provide the long-term policy certainty needed to catalyze sustained capital deployment and support the rapid expansion of digital infrastructure capacity.

 However, the true measure of success will extend far beyond the addition of megawatts and server racks. The next wave of growth will be defined by India’s ability to build a scalable, resilient, energy-efficient, and AI-ready digital infrastructure ecosystem. By creating the foundation for innovation, digital transformation, and next-generation technologies, India has an opportunity to emerge not only as a leading data centre market but as a global digital powerhouse, strengthening its competitiveness and shaping the future of the digital economy.