Inside the data centre boom in India
Triple tailwinds—booming data uptake, digitalisation, and localisation—are fuelling the demand for data centres in India.
Data centres have emerged as a favoured infrastructure asset class as demand for data has shot through the roof, with ~2.5 quintillion bytes generated daily and growing fast.
India has the highest mobile data consumption rate in the world, with data usage of ~18 gigabytes per data subscriber per month at present. Wireless mobile data traffic in the country grew ~31 percent in 2021 to ~253 exabytes, thanks to the increasing use of smart devices by individuals, which has resulted in a massive spurt in data usage.
The launch of 4G services, coupled with a price war, has led to a paradigm shift in data usage and trends. And with a 5G spectrum auction around the corner—slated to begin on July 26— demand for data and storage capacities can only reach higher. CRISIL’s first cut estimate indicates data usage per subscriber could reach ~25 GB per month within three years of the 5G launch.
Added to this, the corporate embrace of advanced technologies such as the Internet of Things (IoT) and big data analytics is driving cloud consumption. Government norms on data localisation, seeking storage of sensitive data within the country, and digital initiatives are another tailwind, though the final contours of and implementation of the Data Protection Bill and the Data Centre Policy are yet to be seen.
Small wonder then that data centres are witnessing a demand explosion. Data centre capacity in the country is expected to double to 1,700-1,800 megawatt (MW) by fiscal 2025 from ~870 MW last fiscal, powered by the data boom, digital adoption, and local data storage mandates.
Coastal cities such as Mumbai and Chennai are likely to lead the capacity addition race, given their proximal access to sub-sea cables, optic fibre connectivity, uninterrupted power supply, and availability of skilled manpower.
Mumbai, the financial capital of the country that accounts for around half of the existing capacity, alone is expected to add ~300 MW by fiscal 2025, while Chennai, Hyderabad and Pune will together add a further 400 MW or so.
All that capacity addition will require hefty investments, estimated at over Rs 40,000 crore to double the capacity base from current levels. Of this, a third will be to acquire land, a fifth for substations, and the balance for civil work, purchase of equipment and fit-outs.
In addition, data centres are now opting for cheaper renewable power which will also require additional investments. This is so because data centres are major power guzzlers, as they require a continuous uninterrupted power supply to cool the servers placed in racks.
Thus, power alone accounts for 45-50 percent of their operating costs. Given the criticality of power, data centre operators also need to keep diesel generator sets as a backup for any outage in grid power, to meet service level agreements.
To be sure, most of the data centres in India are Tier-III certified, which has an uptime guarantee of 99.982 percent.
As things stand, the sector is estimated to log a revenue CAGR (compound annual growth rate) of 24-25 percent over fiscals 2023-2025, to Rs 14,000-16,000 crore.
Renewable power could boost the operating margin by 200-300 basis points, and help sustain the return on capital employed of the projects at 13-15 percent. These estimates are for co-location-led business model, which is widely used at present. With the explosion in demand for cloud services, demand for hyper-scale data centres too is expected to rise, along with the co-location model.
The sector is still emerging in India and remains exposed to technological risks such as social engineering, cyber-attack, data theft and leakages, despite housing high levels of security, which would bear watching.