India’s Data Centre Surge: Opportunities for Investors

Introduction

India’s DC industry stands as a critical pillar in the country’s digital transformation. Experiencing significant growth in recent years, it has entered a high-velocity market phase marked by new technologies, evolving models and intensifying policy focus.

Recognising the overlooked potential in this space, L.E.K. Consulting has developed an extensive market primer helping decision-makers evaluate India’s accelerating DC landscape.

This edition of Executive Insights summarises the key highlights from our primer to equip stakeholders with actionable insights on India’s DC sector. We touch upon the market overview, growth catalysts and outlook shaping this rapidly developing industry. We hope to arm decision-makers with concise intelligence to take advantage of the substantial opportunities this market offers.  

Key demand drivers

India’s DC industry is at an important juncture, where strong underlying demand drivers are converging with strong policy catalysts to propel growth potential over the coming decade. Despite India still being in the early stages of digital development compared with its global peers, the market fundamentals signal an inflection point where the stage is set for rapid acceleration to meet the country’s digital infrastructure needs.

The key factors propelling this bullish thesis are:

• Digitisation – Annual GDP expansion of 5%-7% and increasing tech spend will drive data demand. Consumer digitisation, with the internet reaching 99% of India’s population by 2030, fuels increasing need for data infrastructure.
• Cloud adoption – Public cloud spend in India is growing at 18% p.a. as software-as-a-service models are increasingly utilised due to increasing digital transformation. Data localisation needs are also contributing to DC growth.
• Supportive policies – Central and state governments are offering incentives such as land banks, electricity subsidies and tax breaks to boost digital infrastructure.
• Global connectivity – India’s strategic location and continued investment in subsea cables and expanding fibre networks enable global data access and exchange. This transformational growth in India’s DC industry will be underpinned by increasing data traffic, technological innovations, global tech ambitions and a favourable regulatory ecosystem.

Current market overview

Market size and key players

The Indian DC market has a current capacity of approximately 800 megawatts (MW), with the top five DC operators accounting for nearly 40% of this capacity. Investor confidence in the market is high, as demonstrated by operators’ future investment intentions, having disclosed plans to add 3,000 MW of potential DC capacity over the next few years, contingent on the realisation of announced plans and projects (see Figure 1). 

Despite the large share held by leading DC operators, the sector is witnessing a notable influx of new competitors. This increase in competition is driven by the industry’s growth potential, resulting in a more fragmented landscape.  

Geographic distribution and hub cities

Mumbai and Bangalore are currently recognised as the central hubs for DC activity in India, attributed to connectivity advantages from their proximity to submarine and fibre-optic cables, reliable power grids, and established tech ecosystems; however, cities such as Chennai and Kolkata are becoming attractive alternative destinations due to favourable government policies and subsidies, land banks with expansion capability, cost-effective real estate, access to renewable power, and growing fibre connectivity.

This geographic diversification is expected to enhance the resilience, redundancy and reach of India’s national DC network while spreading the economic benefits. With over 20 cities now vying to host cloud infrastructure, investors have an expanding menu of tier 1 and tier 2 locations to evaluate beyond the conventional map (see Figure 2). 

Renewable energy utilisation

India’s DC market is experiencing a growing shift towards sustainable operations, driven by state and national goals to source energy from renewable sources (see Figure 3). 

States such as Gujarat, Maharashtra and Karnataka are leading renewable power investments in India. This commitment to green energy has strategic implications, considering the long-term cost benefits and regulatory incentives associated with renewable energy use in the industry.

Emergence of new entrants and business models

The optimism around India’s DC growth is attracting several new players and business models while increasing competition. Real estate developers have shown an increased propensity to enter into joint ventures (JVs) to contribute land banks, while private equity firms offer both capital and development expertise (see Figure 4). 

International DC operators such as Digital Edge are also collaborating with domestic partners like India’s National Investment and Infrastructure Fund through JVs that combine global best practices with local knowledge and relationships to navigate policy regulations and land procurement.

Hyperscale cloud providers such as AWS, Microsoft and Google have traditionally preferred self-built DCs to optimise operations but now are also exploring lease models to meet increasing demand through partnerships with local DC providers that can develop facilities at an increased rate. Despite lower construction costs to build DCs in India relative to other regions (e.g., southeast Asia and Australia), DC operators are facing reduced profit margins as they compete for hyperscaler contracts and navigate the ongoing labour shortages because of Covid-19 (see Figure 5). 

JVs help investors go beyond capital injection to contribute value with regard to planning, energy sourcing and localisation needs while technical operators lend their DC development and relationship strengths. The emergence of these new collaborative models indicates both the risks and rewards of entering India’s DC growth story.

Outlook and investment potential

India presents a compelling opportunity for DC investment due to tailwinds such as increasing digitisation, enhanced connectivity, rapidly growing population and supportive state and local government policies. This is expected to open up substantial greenfield opportunities across construction, equipment supply, specialised services and real estate to support the industry’s breakneck expansion.

Areas such as renewable energy integration, battery storage, fibre connectivity and advanced cooling solutions also need capital injection to sustain reliable 24/7 operations.

Supportive policies concerning land banks, electricity pricing and environmental regulations are poised to be pivotal catalysts. Additionally, partnerships with global DC leaders can also foster knowledge transfer while skill development in power, real estate and IT management is likely to generate employment benefits.

India is still a relatively small player compared with data centre hubs such as Singapore and Australia; however, the combination of geopolitical neutrality, cost advantages and a growing cloud market could prime India to emerge as a global leader in this sector if execution keeps pace with the country’s overall strategy.

Conclusion

India’s DC revolution has reached an inflection point with attractive growth potential, driven by strong demand fundamentals and a supportive regulatory environment. New capacity investments combined with sustainability initiatives and further geographic diversification signal an infrastructure leap that can unlock economic and technological benefits. Existing players need to ramp up capabilities while new entrants should act decisively to capitalise on substantial long-term opportunities.

As established players scale up and new entrants tap into this potential, having an experienced partner provides invaluable perspective. L.E.K. Consulting has global expertise across technologies, infrastructure and policy to guide clients towards well-informed investments and growth strategies in India’s accelerating DC industry. Contact us for access to our market primer and discuss growth strategies tailored for navigating this high-velocity, high-reward industry.

For more information, please contact technology@lekinsights.com.

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