India Data Centre Industry: A multi-billion-dollar opportunity

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During the pandemic, while you were remotely working, relying on video calls to get work done, internet providers were busy building the supporting infrastructure to ensure you get a seamless experience.

?A vital part of this ecosystem that ensures better security and connectivity are data centres. Their demand has been steadily growing as we work remotely, consume more content on over-the-top (OTT) platforms, resort to e-commerce platforms for shopping and pay digitally.

?Enterprises, too, have been looking at making their IT infrastructure more robust. Many have, therefore, opted for hybrid of cloud/colocation and captive IT infrastructure solutions for ease of integration, reliability and affordability. Migration to cloud infrastructure is expected to increase in 2021 due to flexibility, security, lower costs and higher performance levels.

?Even though this is a global phenomenon, India stands out thanks to the affordable data and rising smartphone adoption. The country had 825 million internet subscribers as of March 2021, making it the second-largest user market globally.

?Along with a higher number of citizens connecting to the internet, data consumption has also been increasing. The advent of 5G is expected to further increase data traffic per smartphone to 15 GB per month by 2024 from 6.8 GB per month in 2018. As per the Ministry of Electronics and Information Technology, India can create up to USD 1 trillion of economic value from the digital economy by 2025.

?The country is witnessing a data explosion, and it will continue.

?Take third-party or colocation data centre capacities as an example. The country's capacity stood at 499 MW in the first six months of the calendar year or H1 2021, with strong absorption levels of 87.4%. It is equivalent to 90% of the supply addition during the corresponding period, indicating a robust absorption growth.

?The increasing demand has driven data centre companies to expand their operations by setting up new facilities. The industry capacity is expected to double during H2 2021-2023 with the addition of a 508 MW supply, translating to an additional space development potential of 6 million sq. ft. in the period.

?During the last six months, global investors and data centre companies have increased their commitment, with investors and operators announcing joint ventures to set up new data centres. Investment commitments to the tune of USD 3 billion highlights this segment's growth potential in the country.

?The investments and capacity addition will continue with improvement in internet speed. The advent of the fifth generation (5G) wireless services is expected to unleash data access at high speeds and lower latency, redefining many industries. 5G wireless services is the latest cellular technology innovation engineered to increase the speed and responsiveness of wireless networks significantly.

?The supporting connectivity infrastructure in the form of submarine cables is crucial for the growth of the data centre industry. Mumbai and Chennai, with the presence of cable landing stations for such submarine cable systems, have emerged as the key hubs.

The plan by one of the country's leading telecom operators to construct submarine cables with India as the centre is expected to boost the international internet bandwidth of the country significantly. The increased data connectivity, competitive costs and skilled manpower have created a fertile ground for India's emergence as the global data centre hub in the coming decade.

?Data being the backbone of the ever-expanding digital economy is bound to attract significant regulatory attention. The Indian government has introduced legislation that focuses on data protection by data localization. The Parliament's approval of the draft data localization Bill is expected to make data storage within the country mandatory, providing a fillip to the data centre market's growth. Other legislations in healthcare and financial data are expected to provide a further boost for enhanced data storage needs locally.

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But the industry's rapid growth has meant an increase in energy consumption, thereby higher use of conventional fuels and the resultant impact on the environment. Most global cloud players, who are major occupiers of data centre installed capacity, have announced their intention of becoming 'net zero' over the next decade.

Among other things, the data centre industry has started focusing on sustainability using renewable energy. India's renewable energy capacity at 90 gigawatts accounts for a 25% share of the installed power capacity and provides tremendous scope for developing green data centres.

Green energy opens other avenues as well. Countries with the twin advantages of land and renewable power sources will not only have data corridors but also renewable power supply corridors (running undersea), and they could provide green power to nations with scarce resources.

The increasing data usage driven by social media activity, online gaming and streaming entertainment is likely to drive the need for more Edge Data Centres – smaller facilities located close to the populations they serve. It means there will be demand for data centres beyond metros in the future. These data centres are expected to increase with the rollout of 5G services.

As data becomes the core of a new technological revolution and redefines the way we live, work and play, the data centre industry will be the pivotal agent of change. India is ready for this leap into the new digital age.