India's data center revolution: Powering the trillion-dollar digital dream

India is building data center facilities, which will create the infrastructure that will support India's trillion-dollar digital economy. For decades, the development of data center space had been limited to small, enterprise owned server rooms and has now become a top-level strategic priority for the country. A combination of factors has created the conditions for an unprecedented buildout of data center capacity in India, including, the largest and most data-intensive mobile user base in the world, the roll-out of ubiquitous 5G, a government mandate for data sovereignty, and the rapidly changing demands of artificial intelligence. These factors are creating a massive demand for new data center capacity.

The numbers are defining the size of the Indian data center market. Projections of industry analysts forecast that the total installed power of India’s data centers will reach over 2GW by 2026 from a current level of over 1GW. This is a very significant build-out, and industry analysts believe that India’s data center capacity will grow fivefold by 2030 to over 8GW. This growth is expected to generate over $30B in capital expenditures¹.

This is no simple or linear process of scaling-up. There are two powerful, and at times conflicting, drivers of the build-out of India’s data center capacity – a non-negotiable government policy directive for data sovereignty and the existential imperative of ensuring sustainable resources. Every player in the ecosystem of the data center build-out, including the hyperscale companies signing agreements for 200MW, the policymakers writing the regulations for the electric grid, the enterprise CIO selecting their cloud service provider, and the vendors designing the cooling systems will need to navigate this tension to be successful in the coming decade.

The great buildout: Policy, Capital & Geography

The trigger: Data localisation

Data localisation is what is driving the boom in the development of data centers in India today. The Data Protection Decree (DPDP) Act of 2023, combined with existing and future specific mandates from various sectors (e.g., RBI, SEBI), have fundamentally changed the environment in which all parties operate.

Data sovereignty-is the new market driver and not just a bussword.

The geography: Old markets and the new frontier

The battleground is currently concentrated in Mumbai & Chennai markets. These two cities account for over 70 per cent of India's capacity². One is a financial hub and the other is the landing station.

We are also seeing the rise of edge computing. To deliver low-latency content like 4K streaming, online gaming, and IoT; data must move closer to the consumer. This is driving operators to explore building smaller, modular data centers in Tier-2 and Tier-3 cities, creating a distributed national data infrastructure.

The fuel: A wall of capital

The $30 billion investment figure is not a projection³. This buildout is being financed by long-term capital from institutional investors around the world. Sovereign wealth funds, PE firms look at Indian data centre market, not as some kind of speculative real estate play, but as a core utility.

The new giant: AI changes all the rules

The industry believed that it was hitting its stride, in applying technologies to build for modern day cloud storage and enterprise IT. It was hit by a new berg which has entered the picture: Artificial Intelligence.

The revolution of AI is not just another workload. A General Capacity Utilisation (GPU) server rack for AI workload, can consume 5 or 6 times as much power and would be dissipating just as much heat; as a conventional server rack. We are moving from the world in which a 10kW rack was high-density, is now considered par for the course.

From D2C cold plates to liquid nitrogen cooling tanks, suppliers are in a hurry to offer them. Operators need to weigh the strategic decision of building ‘AI-ready’ centers, which will come with an enormous cost premium or risk being stuck in “legacy” facilities that are unable to service the next wave of demand. Industry estimates are that 50 per cent of data center capacity could be AI-related within ten years, radically reshaping design and cost, but most importantly energy demand⁴.

The sustainability mandate: India's $30 billion challenge

This brings us to the Data Centre’s most existential challenge: power and sustainability. This is where the goals of policymakers and operators need to align.

Three-Pronged dilemma of power: Availability, Cost, and Cleanliness

The grid in many parts of India, while improving, is still not at 99.99999 per cent ("five nines") reliability that data centers require.

This has led to the industry's "dirty secret": reliance on diesel generator farms for backup power. A 100 MW hyperscale campus requires a backup power plant of its own, with colossal diesel storage. This is not just a massive opex and carbon liability; it is an environmental and regulatory dead end.

Policymakers are clamping down on emissions norms, and the industry is desperate for an alternative. This opens up a huge opportunity for vendors in Battery Energy Storage Systems, solar, wind and green hydrogen fuel cells.
The green imperative

The green imperative is no longer a CSR initiative; it is a core business and license-to-operate necessity. Enterprises and Hyperscalers, have their own 100 per cent renewable energy goals; these US and EU based giants are now auditing their entire global supply chain, and their colocation providers are at the top of the list.
The water stewardship crisis

The "P" in PUE, or Power Usage Effectiveness, has been the industry's obsession for long. Also, WUE or Water Usage Effectiveness-is just as critical. Cooling systems use huge volumes of water, especially legacy ones using evaporation, this needs to be modernised as soon as possible.

The unseen hurdles: Talent and Timelines

Beyond the concrete and steel, two unseen hurdles threaten to slow this revolution: people and permits.

work

The talent gap

India has a world leading IT workforce, though it does not have a world-class data center workforce, at least not at the scale required. A modern data center needs highly specialised mechanical and electrical engineers, HVAC and cooling plant operators, cybersecurity experts in critical infrastructure, and DCIM specialists. This skills gap is on both the spectrums i.e. blue and white collar; that policymakers and operators need to bridge through PPP agreements in professional trainings and university level programs.

forest

The permitting jungle

Building a data center is not like building an office. It needs a complex web of permits covering land allocation, environmental approvals, power, building and fire safety codes etc... Policymakers who can create "single-window" clearance systems for data centers will give their states a competitive advantage.

The road ahead: A call to action for every stakeholder

India's data center revolution has reached a critical juncture. Success is not an entitlement; it must be created brick by brick by each player in the ecosystem.

For policymakers

The DPDP Act has lit the fire, and policies must clear the path. The focus must be on grid modernisation and unveiling "single-window" clearance systems. Invest in skill development as a national priority; the people who will be running these facilities are as critical as the facilities themselves.
For data center operators & hyperscalers

This is no longer a land grab; this is a race for strategic procurement of power and water. Your next facility design needs to be modern and ready for tomorrow’s AI i.e. liquid-cooled and hyper-efficient from day Zero. The critical strategy will be securing long-term renewable energy contracts, and the biggest investment must be in training and retaining a world-class operations team.
For enterprises

Cloud provider is part of your business, legal and sustainability strategy. Due diligence cannot stop at price-per-kilowatt; power sources, PUE, WUE, physical security, and regulatory compliance roadmaps of your partners require scrutiny. Any brand's sustainability and legal standing are now inextricably linked to its infrastructure partners.
For technology vendors

This is the golden age. A Big Bang of innovation is needed. We need cost-effective modular designs for the edge, breakthroughs in chip and immersion cooling, and DCIM software which is AI powered; that can automate & optimise the interplay of power, cooling, and compute workloads.

This is a generational opportunity for India to build a digital infrastructure that is not only scalable but also sustainable and sovereign. It is more than an investment; it's a down payment on India's digital future. In fact, the build out is happening. The challenge now is to build it smart, green and build it together.

^[1] https://www.imarcgroup.com/india-data-center-market

^[2] https://www.ibef.org/news/india-s-data-centre-industry-now-worth-rs-85-580-crore-us-10-billion-shows-explosive-growth#:~:text=The%20industry%20is%20primarily%20concentrated%20in%20major%20cities%2C,capacity%20and%20Mumbai%20alone%20contributing%20nearly%20half%20%2849%25%29.

^[3] https://www.ibef.org/news/india-s-data-centre-industry-now-worth-rs-85-580-crore-us-10-billion-shows-explosive-growth#:~:text=The%20industry%20is%20primarily%20concentrated%20in%20major%20cities%2C,capacity%20and%20Mumbai%20alone%20contributing%20nearly%20half%20%2849%25%29.

^[4]https://www.imarcgroup.com/india-data-center-market