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The Rise of Data Centres in India

Jul 17, 2021 1:13 PM 5 min read

There is an old data science joke that if you don't succeed at something then call it 1.0.

The journey to success in data development is peaking new highs everyday. A recent Crisil report says that India's data consumption has seen a sharp 38% uptick YoY in FY21. This has piqued the interest of global data developers who are evidently flocking to India to invest, establish and develop data centres in the country.

Today's analysis is focused on the emerging growth of data centres in India and how they may facilitate or impact India's future as a potential data powerhouse.

Unintended COVID-quences

As per the Department of Telecommunications, data usage in India spiked by 13% during just the first week of the lockdowns last year. Which isn't a far-flung expectation considering the higher rates of working from home, video conferencing, online shopping, social media usage and content consumption.

High rates of usage means large data volumes which means larger data storage requirements - hence translating to increased demand for data centres. 

What is exactly inside a data centre? It is basically a large group of computer servers that process and distribute but mostly store large amounts of data. Essentially, if data is the new oil, data centres are the new reservoirs. 

Data centres have existed in one form or another ever since the internet age began. But as technology turned more progressive, so did the means and facilities of storing data. Corporations relied more on cloud storage rather than the physical storage facilities. 

But with increased instances of hacking, accessibility issues (sans internet) and demand, physical data centres have risen to relevance again. The world's biggest public cloud infrastructure providers - Amazon Web Services (AWS), Microsoft Azure and Google - all have established data centres in India. 

As opposed to the proprietary and on-site storage that was common earlier (captive data centres), companies are now moving towards shared facilities (colocation data centres) outsourcing storage to data centre owners. This will turn most beneficial for companies like AWS who clearly understand the potential gains from investing $2.8bn for building a second data centre in India.


Why Is India So Data-Hot?

One, the teeming human resource! Having data centres in India enables local service delivery to over a billion people AND improves delivery for users in neighbouring countries as well due to lower latency rate (faster transmission due to closeness to a data hub).

Two, India has over 10 under-sea cables across the west and east coasts. These are the submarine cables laid on the sea bed that carry telecom signals across continents. This is also why Chennai and Mumbai remain the most sought-after data destinations in the country because of their coastal location that enables cable landings, among other factors. 

Three, the burgeoning presence of IT, ITeS, BFSI and manufacturing sector is expected to drive big demand. This is also going to be exacerbated further by the imminent rollout of 5G, IoT-linked devices and rising cloud adoption services in the country. 

There is also sizable bandwidth speed, lower power tariffs and a significant presence of cloud hyperscalers (AWS, Microsoft etc.) to fuel the market. 

Four, the transition towards green energy is rapid. India's renewable energy capacity stands at 90 GW which is a fourth of the total installed power capacity. Data centres are big power guzzlers and consequently prefer clean-powered operations. 

With conglomerates like Tata, Adani and Reliance betting big on renewables and the Government committing more towards emissions-control targets, the next-gen data centres are largely favouring India. All this on top of the fact that India’s per unit electricity costs are lower than most developed countries.  

Five, the data localisation norms. Storage of financial (payments-related) data has already been enforced by the RBI, rather stringently considering the recent penalties for non-adherence. Barring that, the storage of "sensitive" and "critical personal" data as proposed under the Data Protection Bill also creates room for domestic storage, that is, if passed into law. 

And then there is the Draft Data Centre Policy 2020 which, though nascent, still aims to incentivise construction of private data campuses through dedicated tax cuts and policy boosters. 

In any case, data-driven governance in the country is gaining enough momentum to necessitate building more data centres. The rise in Government-to-Citizen (G2C) delivery platforms - NPCI-enabled benefits, National eGovernance Plan, e-Visa, National CSR data etc. - are partially responsible for that as well.


Who Are the Data-nators?

Reports indicate that the Indian data centre industry is expected to reach 1000 MW capacity from the current 447 MW by 2023. Mumbai and Chennai are expected to lead the charge by pocketing 73% of the total capacity addition in the next two years. Hyderabad and Delhi-NCR are next in line. 

The first hyperscale data centre park was established last year in Yotta Park, Greater Noida. The centre is owned and developed by the Hiranandani Group which is also designing another park in Chennai. 

Fun Fact: The world's second-largest data centre building (India's largest) is located in the 600-acre Hiranandani Fortune City in Panvel.

Private equity and strategic investments into data centres in India grew to a record $396m between January and September last year. Here's a list of some other prominent investments in the data centre segment:

Some of these investments are built-to-suit (BTS), meaning that they are focused on the end-user needs and the constructor customises facilities of the building accordingly. Other investments are preferred through direct acquisitions or partnerships which enables using the local entity's expertise in site selection, operation and compliances. 

Captive data centres still have a higher market share in the country but the colocation model is witnessing tremendous growth lately. The real estate demand for data centres is also likely to increase by 15-18 million square feet in the next four to five years.


A Demand-Dated Growth

There is a serious mismatch in demand and capacity. India is quite capacity-hungry for the data centre market but it doesn't come close to even smaller countries like Singapore or a tiny US state like Virginia. The online and digital penetration is aggressively increasing but the infrastructure required to support it is still low. 

The data residency policy, given all its pros and cons, may ultimately prove beneficial in forcing domestic data centre infrastructure. But in order to build and sustain local infrastructure, round-the-clock power availability is essential, preferably integrated with grids to ensure continuous supply. 

The top seven cities currently account for 75% of the total data centres. Migration into smaller and non-metro cities driven by increasing 4G and potential 5G penetration could service the growing demand. 

The average Indian consumes 10 GB of data per month. After you offer citizens cheap internet rates and affordable smart devices fuelling the data-binging trend, there is only so far you can go without worrying about storing the by-products of such enormous binging. Now is the time to build those silos before our clouds are dripping wet with data. 


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