News & Analysis

India’s Data Center Capacity Likely to Double by 2025

This would require an investment in excess of Rs.40,000 crore of which a big chunk would towards land acquisition costs, says CRISIL

Make no mistake! India could be on the cusp of a data center boom with capacities set to double by 2025 from around 870 MW in 2021 to about 1,800 MW, on the back of the data boom, massive digital adoption and local data storage mandates, a new research says. 

According to the latest report from Crisil, this scale of expansion would require investments upwards of Rs.40,000 crore. “The corporate embrace of advanced technologies and digital infrastructure, and the increasing use of smart devices by individuals have led to a massive spurt in data and cloud usage (wireless mobile data traffic grew ~31% to ~253 exabytes2 in 2021), creating huge demand for data centers,” Crisil says. 

The expected launch of 5G services by end-2023 could further boost demand for data and storage capabilities as the federal government norms make it compulsory for enterprises to store data locally. This alludes more specifically to sensitive data of customers. 

 

Equinox has set the ball rolling

And as we speak, reports are emanating of how Equinix, Inc, a US-based digital infrastructure company, has earmarked an initial investment of over $86 million to build its third International Business Exchange (IBX) data center in Mumbai. The investment includes land acquisition costs for around four acres. 

The company, which operates over 240 data centers across 70 cities to provide infrastructure for more than 10,000 of the top global enterprises, entered India last year through acquiring two data centers in Mumbai. With 1,350 cabinets, these centers provide digital infrastructure for 270-plus global and local companies. Equinox expanded into Chennai, acquising 5.5 acres this March and now has announced a fourth center in Mumbai. 

Crisil Ratings’ Director Nitesh Jain says data centers are emerging as an attractive infrastructure class in India. “The industry is expected to add ~850-900 MW capacity during fiscals 2023-25. Mumbai, the financial capital of the country that accounts for around half of the existing capacity, is expected to add ~300 MW. This growth would be supported by proximal access to sub-sea cables, optic fibre connectivity, uninterrupted power supply and availability of skilled manpower. Hyderabad, Chennai and Pune will follow suit, and likely to add ~400 MW capacity cumulatively,” he adds. 

Of the Rs 40,000 crore investments, a third will be to acquire land, a fifth for substations, and the balance for civil work, purchase of equipment and fit-outs. Capex will also be required for captive renewable energy sources, which are cheaper than grid energy.

Says Rakshit Kachhal, Associate Director, CRISIL Ratings, “With electricity accounting for 45-50% of the operating expense of data centers, there is sharper focus on an optimum mix of grid power + renewables. The share of renewables in data center power consumption is expected to increase to ~35-40% by fiscal 2025 from less than 15% now. Renewable power being cheaper will improve the operating margins of the sector by ~200-300 basis points by fiscal 2025 and help sustain project’s returns on capital employed at 13-15%.” (Refer to Chart 2 in annexure)

That said, the final contours and timelines for the implementation of the Data Protection Bill and the Data Center Policy, and the mass uptake of 5G services are upsides that can give a further fillip to demand for data centers in India.

However, the emerging sector still remains exposed to technological risks such as social engineering, cyber attack, data theft and leakages, despite high levels of security. Moreover, as the sector is still emerging in India, other vulnerabilities might unfold, so these will bear watching.

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