India’s data center capacity to double by FY 2025, report

India’s data center capacity is expected to double to 1,700 to 1,800 megawatt (MW) in FY2025, up from 870 MW in last FY, said CRISIL Ratings, a rating and research company, in its latest report published June 8.

This capacity growth has been attributed to the massive increase in demand for data and cloud storage in India fueled by rising smartphone and internet penetration and digital transformation by corporates.

The rating agency also pointed out that India’s data protection laws that require companies to store sensitive data on Indian servers will further boost demand for data storage. The anticipated rollout of 5G services by the end of FY 2023 will also play a key role. 

However, the rating agency said that building this capacity will require investments of more than Rs 40,000 crore. One-third of this investment will go into acquiring land, one-fifth on substations, and the remainder on workers and the purchase of equipment.

Rakshit Kachhal, associate director at CRISIL Ratings, said, “with electricity accounting for 45-50% of the operating expense of data centers, there is a sharper focus on an optimum mix of grid power renewables.”

Kachhal believes the share of renewable energy in data center power consumption is expected to increase to 35-40% by FY 2025 from less than 15% now.

“Renewable power being cheaper will improve the operating margins of the sector by 200-300 basis points and help sustain project’s returns on capital employed at 13-15%,” he added.

Nitesh Jain, director at CRISIL Ratings, said, “data centers are emerging as an attractive infrastructure asset class in India. The industry is expected to add 850-900 MW capacity during fiscals 2023-25.”

Jain pointed out that Mumbai accounts for close to half of the existing capacity and will add 300 MW more by 2025. However, going forward, Hyderabad, Chennai, and Pune will also play an important role and cumulatively account for an additional 400 MW capacity.

During the 2022 union budget, the data center industry in India was granted infrastructure status by the finance minister Nirmala Sitharaman. Getting infrastructure status means the industry will get better access to foreign capital, equity investment, and loans at low interest.