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In an era where internet use has become near-universal, global demand for digital infrastructure is experiencing an unprecedented surge. Increasing demand for digital services and applications has driven mobile phone subscription and usage rates to over 90% in most markets. This proliferation is driving demand for digital infrastructure from cloud service providers, hyperscalers, and over-the-top media companies across all regions. According to JLL, the global colocation data center market is projected to grow at a robust five-year compound annual growth rate (CAGR) of 11.3% from 2021 to 2026.
As digital demand surges globally, India has become a pioneer in foreign investment in the data center industry. According to a recent report by CRISIL Ratings, India's data center sector is poised to attract investments of over Rs 45,000 crore in the next three financial years and is attracting interest from diverse global companies.
Why is there a sudden spike?
India currently has 151 data centers in operation, making it the world's 14th largest market in this sector. The Indian data center industry has grown from a footprint of 2.7 million square feet (msqft) in 2017 to 11 msqft in 2023. According to market research firm Arizton, data center size in India has increased from 447 MW in 2021 to 819 MW today.
Data center demand is driven by key factors such as infrastructure availability, with considerations such as power and fiber becoming critical.
Noting the industry's growth, the increase in foreign investment is part of the Indian government's aggressive push towards digitalisation, exemplified by the 'Digital India' campaign. Policies such as the National Digital Telecommunications Policy, Data Protection Act and Data Center Policy have created an attractive environment for global companies looking to operate in India. The DPDP law focuses on local storage of personal data. This regulatory environment is impacting businesses to invest in secure and compliant data storage solutions within the Indian market.
Additionally, the introduction of new submarine cable infrastructure linking Mumbai and Chennai to major global hubs such as Singapore, South East Asia, Europe and the Middle East will not only enhance connectivity but also reduce latency, making it possible for Indian data centers to It will be advantageous for the provider. Improved connectivity and strategic positioning will enable data center providers to offer more competitive services and meet the growing demands of businesses and consumers.
Demand drivers
Data center demand is driven by key factors such as infrastructure availability, with considerations such as power and fiber becoming critical. In response to this demand, India has emerged as a highly sought-after destination on the back of its well-developed telecommunications infrastructure and strategic position in Tier 2 and Tier 3 markets. Reliable power grids and large-scale renewable energy sources coincide with an increased focus on corporate sustainability goals.
Additionally, the rise of e-commerce, Internet of Things (IoT), and other data-intensive industries in India has increased the demand for robust data infrastructure. To address this, the concept of edge data centers is gaining traction in India.
Potential challenges
India's current data center capacity is insufficient to meet rapidly expanding demand. As businesses aggressively pursue digital transformation in India, data center power consumption is expected to soar, reaching nearly 5 gigawatts in the next six to seven years. Addressing the burgeoning demand for data storage requires parallel efforts to address environmental issues and the urgent need for sustainable practices.
