India data center capacity to double in 3 years

India's data center industry is on the brink of remarkable growth, with capacity expected to double in the next three years, from around 0.9 Gigawatts (GW) in 2023 to nearly 2GW in 2026. This additional capacity has created substantial investment prospects due to the estimated capex requirement of Rs 50,000 crore in the next three years, as per market research firm CareEdge Ratings study.

India currently holds a data center capacity share of only 3% globally despite generating 20% of the global data. Mobile data usage in India is the highest globally in terms of exabytes used per month. The ratings agency expects that data localization, tax incentives, and cost-saving incentives issued by the states will help attract robust investments.

"The growth plans have also created substantial investment prospects, with an estimated capex of Rs 50,000 crore in this space over the next three years until 2026. However, project execution challenges, such as land and equipment availability, and management of the vendor ecosystem need to be addressed for the planned capacity addition to materialize," said Puja Jalan, Associate Director at CareEdge Ratings. She also noted that the cost per MW of setting up data centers has been rising, with costs escalating to levels of Rs 60-70 crore per MW from an average cost of Rs 40 - Rs 45 crore per MW.

The data center capacity growth in India has been complemented by increased absorption. CareEdge Ratings reported that absorption levels have increased from 82% in 2019 to 93% in 2023. As capacity was added, industry players' revenue increased by nearly 25% CAGR from 2016-17 to 2022-23.

Maulesh Desai, Director at CareEdge Ratings, said, "For large-scale capacity addition, data centers need to consider a mix of renewable energy and low-carbon technologies to ensure cost competitiveness and sustainability. We expect more new players with diverse expertise to enter the segment, which will reduce the market share (capacity-wise) held by the top 5 players from over 90% to around 75%."
Desai also mentioned that the industry is expected to see 5GW capacity addition announcements over 5-6 years. Long-term revenue visibility with strong counterparties bodes well from a credit perspective.

Looking ahead, cost efficiencies, innovative designs for scalability, and adoption of new technologies to meet increasing energy and cooling requirements are critical success factors for the industry. Revenue growth is anticipated to continue over the next three to four years, with a projected 32% CAGR growth during 2023-24–26. Operating margins are expected to remain stable in the next three years, the study indicated.
To be sure, according to a report by CII-Colliers, published in October, India's data center industry is projected to double in size to 23 million square feet and attract $10 billion in investment within the next three years. Factors driving this growth include increased data consumption, a favourable regulatory framework, and significant investments in the sector.

This expansion, driven by the exponential increase in data consumption, a more favourable regulatory framework, and substantial investments, is expected to be further fuelled by the recent passage of the Digital Personal Data Protection Bill 2023, according to the report titled ‘India Data Centers: Entering Quantum Growth Phase’. Mumbai, Chennai, and Hyderabad, with their robust infrastructure and supportive regulations, are poised for substantial growth.