How is AI boom driving India's data centre expansion

The rapid adoption of artificial intelligence (AI) is profoundly transforming various industries, with the most notable being its influence on the data centre sector. The rise of AI applications such as machine learning (ML) and natural language processing, is leading to an increase in data generation, in turn, leading to a rise in the need for their storage.
Further, the rise of edge computing - which processes data closer to its source to reduce latency and bandwidth usage, and heavy computational and storage requirements, are also necessitating an increase in demand for data centre space. Edge data centres are being established near population hubs to support real-time AI applications.
This is evident from the growth of hyperscalers such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, who are also driving this demand as they enhance their data centre capabilities for AI workloads.

Rise of AI-led data centres

AI data centres differ from traditional enterprise cloud data centres in three key aspects: scale, power density, and location, said Singapore-based data centre provider Princeton Digital Group's Managing Director Vipin Shirsat. The company recently planned a $1 billion investment in India as part of its $5 billion plan for AI-ready data centres in Asia. 

AI has the potential to transform data centre management by enabling real-time monitoring, predictive maintenance, and efficient energy management, resulting in lower carbon emissions and reduced operational costs, he said. 

“Energy efficiency is a pressing challenge for data centres, particularly since cooling systems consume a significant amount of energy. Traditional cooling methods often fail to meet the demands of high-performance computing, leading to excessive energy use and costs. AI can dynamically adjust cooling systems based on real-time data, optimising energy consumption without sacrificing performance,” said Sharad Agarwal, Chief Executive Officer of Sify Infinit Spaces Limited, a wholly-owned subsidiary of Sify Technologies Limited.

As sustainability becomes increasingly important to consumers and regulators, AI offers a way for data centres to lower their carbon footprint while maintaining performance. Also, downtime can damage customer trust, but AI-driven predictive maintenance analyses historical data and real-time metrics to anticipate equipment failures, allowing for timely maintenance and ensuring continuous operations, he said, adding that this approach minimises disruptions and extends the lifespan of critical infrastructure.

Likewise, security is another vital concern for data centres, and AI is crucial in this area as well. As Rohan Sheth, Vice President, Colocation & DC Build at Hiranandani-Group-owned Yotta Data Services, noted, AI systems can continuously monitor network traffic for anomalies that may indicate a breach, enabling operators to respond swiftly to potential threats. Machine learning algorithms allow AI systems to adapt to new threats faster than traditional security measures, automatically triggering protocols to mitigate risks from unusual login attempts or abnormal data transfers.

AI data centre dilemma

However, integrating AI into data centres can be challenging due to legacy systems that resist modernisation. Outdated infrastructure complicates the full implementation of AI solutions, but a phased approach can help. For instance, predictive maintenance and energy optimisation can be tested in isolated sections before scaling to core operations, reducing disruption risks and fostering confidence in AI capabilities. Hybrid systems that combine traditional monitoring tools with AI enhancements also allow data centres to benefit from advanced analytics without overhauling existing infrastructure.

High initial costs for AI-enabled infrastructure, continuous power and cooling needs, and cybersecurity threats are among the hurdles data centre operators face. “Data centres are investing in renewable energy sources to mitigate this challenge, with some deploying solar and wind power solutions to reduce reliance on the grid,” said Rashesh Mody, EVP of Business Strategy and Technology, at industrial software company Aveva.

Also as data volumes grow, so do challenges related to data privacy and compliance. Data centres must implement stringent policies to comply with India’s evolving regulatory landscape, particularly regarding data localisation and privacy laws.

Furthermore, the talent shortage is another challenge for AI-led data centres, as building and managing these facilities requires specialised skills. With rapid growth, there is a pressing need for skilled professionals in data engineering, AI operations, and cybersecurity.

The road ahead

Despite these challenges, AI is undeniably accelerating the transformation of India’s data centre industry, paving the way for unprecedented growth in storage and processing capabilities. As investments increase and local demand continues to rise, the future of India’s data centre industry appears poised for further expansion and innovation, making it a cornerstone of the country's digital economy.

According to a recent report by American real estate and investment firm CBRE, investment commitments in the DC industry are expected to exceed $100 billion by the end of 2027, with Maharashtra and Tamil Nadu being the most preferred destinations, followed by Delhi-NCR, Bengaluru, Pune, Hyderabad, and Kolkata.

Not just the hyperscalers who are leveraging their extensive networks to support AI-driven applications across various sectors, including healthcare, fintech, and logistics, Indian companies such as Sify Technologies, ESDS, CtrlS, Yotta, AdaniConneX, and STT GDC India are also investing in AI data centres, marking a fundamental shift in efficiency, security, and sustainability to meet the expanding demands of the digital age. Last month, Bharti Airtel’s data centre arm, Nxtra by Airtel, announced the deployment of AI in its Chennai data centre. The company’s CEO Ashish Arora said that the company is always integrating newer ways to build future-ready and sustainable data centres with a vision to deliver superior customer experiences. "n line with this, we have been at the forefront of building new-age data centres that leverage automation and advanced technological capabilities," he said.

The Indian government’s approval of a $1.24 billion (₹10,732 crore) investment in AI infrastructure is expected to further accelerate the sector’s expansion. AI-ready infrastructure is anticipated to play a transformative role in India’s digital ecosystem. A report by Avendus Capital in August indicated that India's data centre capacity is set to grow by 500 megawatts (MW) over the next four years, driven by increasing AI workloads.

As Prateek Jhawar, managing director at Avendus Capital, noted data centres adopting AI now will better navigate future digital complexities. He believes that the evolution of data centres goes beyond supporting the digital economy; it focuses on improving intelligence, efficiency, and resilience, which in turn will lead to greater innovation and growth.