Budget 2022-23 has increased allocation towards critical infrastructure segments, including transportation, supply chain, industrial capacity, digital ecosystem as well as sustainability.. For the data center industry, the Budget has set a very strong foundation. Granting infrastructure status, on the lines of affordable housing and other key industries, is a major positive.
This will bringin long term benefits – availing long-term credit at relatively lower cost from international and domestic lenders on easier terms of credit. Time is opportune to explore journey of data centers so far and the miles that it could achieve in the immediate future, due to the enabling atmosphere created in India.
As of end-2021, India had a total colocation data center capacity of around 824 MW, which is spread across 8.8 million square feet in the top-7 real estate markets – Mumbai Metropolitan Region (MMR), Bengaluru, Delhi - NCR, Chennai, Hyderabad, Pune and Kolkata.
This is a significant 30% growth over the capacity in 2019, and in 2021 alone, there was an addition of 100+ MW of installed capacity. Active development platforms such as EverYondr (Everstone-Yondr), BAM Digital Realty (Brookfield-Digital Realty), AdaniConneX (Adani-Edgeconnex) etc. have already acquired land and are still on the look-out for suitable land parcels.
Approximately over 1.0 GW of incremental data center capacity are in various stages of construction, expected to start operations over the next 4-5 years. Cushman & Wakefield estimates suggests there are investments worth US$14.5 billion that has been committed till date for development of data centers, and over 70% of that investment is by foreign operators or investors. The excitement around data centers has been unprecedented, and regular announcements of new cloud regions will only add to supernormal growth in the digital ecosystem
What e-commerce did to the warehousing space demand in India and around the world, digital explosion is doing to the prospects of data centers. Very economical internet charges and availability of cheaper smartphones have made India amongst the highest consumers of data in the world. While average data consumption in India of 15.5 GB per user per month is much higher than some of the advanced nations the country lags in installed data center capacity. The gap in consumption and capacity highlighted in the adjacent table is true for all large Indian cities.
|Country||City/Market||Installed data center capacity (MW)||Average data consumption*(GB/user/month)|
Source: OpenSignal, Structure Research, C&W Research
*Denotes national average data consumption
To further highlight this gap, the installed capacities in top-tier data center markets such as Mumbai, is lower than most of the gateway cities in other advanced or even comparable economies. With data consumption levels in Mumbai or equivalent Indian city being higher than national average, its immediately clear that the gap to bridge is even more substantial. Therefore, the significance of government impetus is much needed and hence a welcome move.
A National Data Centre Policy has been in the works for a while. Its draft has laid out guidelines and incentives such as revised building guidelines, faster clearances and uninterrupted power supply provisions including use of captive power units. The INR 12,000 crore incentive scheme that is on the anvil to attract investors and operators also would promote usage of indigenously manufactured equipment. Few states such as Telangana, Uttar Pradesh and Tamil Nadu have already come out with dedicated policies to incentivize investments into data centers, while other states are expected to follow suit.
Indian government has been focusing a lot on creating an ecosystem to foster sustainability, an issue that the data center industry has been grappling with around the world. Singapore government’s recent target for future datacenters to aim at power usage effectiveness (PUE) of 1.3 or less may set policy benchmarks across the world.
A McKinsey report had stated that data centers are responsible for over 2% of global electricity consumption, and this is rising year on year. With conventional power generation modes, it would be difficult to achieve sustainable goals for the sector. Hence in the last four to five years and in the latest FY23 budgetary allocation, Indian government has been raising the bar. Spending on cleaner nuclear energy and renewable energy has risen by 58% and 8%, respectively, every year. Consequently, installed renewable energy capacity now stands at 10% of overall installed capacity as per recent official estimates. Data center firms are proactively partnering with sustainable energy firms to either set up dedicated/ collaborative platforms or secure as much energy from sustainable sources as possible.
With bulk of the data center demand in India currently coming from global cloud firms such as AWS, Microsoft Azure and others, this direction of growth suggests greater business efficiencies and efficient energy consumption in the coming years.
Data localization rules will be in place at the earliest possible as passage of the Personal Data Protection Bill in parliament is expected soon. Once the legislation is approved, companies will be legally mandated to store critical data and information within India, thereby increasing demand for safe data storage facilities. Meanwhile, the Reserve Bank of India (RBI) has already mandated storage of all payment system data locally.
The BharatNet project that would connect all village panchayats with optical fibre by 2025 is expected to provide the network connectivity in smaller towns and rural areas. This could facilitate the growth of edge (or smaller) data centres in these towns. Moreover, rollout of 5G services within 2023, Digital Banking Units (DBUs) by scheduled commercial banks, National Digital Health Ecosystem with digital registries of health providers and facilities are all welcome news in terms of demand for data storage services.
This tremendous investment into data centers is being witnessed across the globe and India is not an exception. Continuous investment in augmenting power and optic fiber networks is as important as incentives being provided at policy levels. While several new marine cables have been announced and are being laid to improve India’s connectivity internationally, it would be the micro, intra-city level improvements that would assist in success of all upcoming projects. We hope that the good step taken in this year’s budget is the first in the direction of continuous support that data centers receive in years to come.