Crucible of Tech: India’s Data Center Evolution Driven by AI and Policy

How an insatiable data wave is shoring up new fortunes for India

In the pecking order of things, India’s data center (D/C) capacity is about 722 MW while Virginia, US remains the D/C capital of the world with 2130 MW (CBRE estimates). But India has eclipsed Asian D/C hubs already with 100% growth last year leaving behind Singapore (650MW) and Hong Kong (420MW). Limited land and sustainability factors constrain these Asian hot spots but not India, which grew from 350MW (2021) to 722 MW (2022) and is expanding like crazy.

According to JLL ‘s latest Global Data Center report, the Colocation Segment is growing at 11.3% CAGR, and Hyperscaler Segment is at 20% CAGR (2021–26) across the globe. The fastest growing segment, unsurprisingly is Hyperscalers and Edge Data Centers, with the latter bringing in spatial diversification and improving latency. The report identifies robust demand but supply-side challenges with capital flow, skill shortages, and general economic moods delaying investment decisions globally.

But as always, India has its own dynamics at play. The Data Center (D/C henceforth) sector, in general, is exploding with an incredible number of new D/C sites evaluated, new investors coming in, captive D/C growing at breakneck speeds, capacity enhancement underway, global data center standards being expected and even a D/C focused Mutual Fund launched.

What is driving this incredible growth?

One of the big drivers of course has been an unabated demand growth in data consumption. A Nokia report from March 2023 shows that Indian data consumption has gone to 20GB per user per month (up from 4GB four years ago) and is projected to go to 46GB per user per month in 2027. On the national scale, this went up to 14.6EB per month in 2022 (up from 4.6EB in 2018).

Data sovereignty rules (localization of certain types of data within the country’s borders) were a big early driver. The mandate clarified that there was a clear political will on the matter.

OTT players and CDN (content delivery networks) activity in India is large enough to make it attractive for global players to consider setting up captive or leased DC capacities here.

Digitalization, digital currency, and several public goods initiatives from the government have driven data usage in both P2P, as well as B2B, and B2C sky high. OTT, P2P usage, network gaming, mobile video, HD, and 4 K have driven video and multimedia usage to the lowest strata of society and unleashed creativity to the hilt. This will only grow further as broadband quality improves further and prices drop, eliminating all barriers to deeper penetration.

Backend Infrastructure Needs to Keep Up

The visible elements of telecom infrastructure that make all the news usually is a spectrum, and the coolness factor comes from x MP cameras, and device capabilities. What does not get noticed is the uncool stuff that lies hidden — such as fiber backhaul, fronthaul, points of interconnect, right of way, in-building coverage, data centers, undersea cable infrastructure, dark fiber, and so on.

Ensuring data experience has not diminished requires data caching at eNodeBs, or local caching, local data server farms, premise-based storage, cloud servers, and edge data centers.

Global Class Data Center Site Requirements

Data Center facilities basically require affordable real estate, uninterrupted power supply, and extensible bandwidth. These facilities typically outgrow their capacities as demand continuously grows and needs to be expanded. Power supply and broadband (fiber) supply should be extensible — that means, should be available on demand.

According to JLL Report, Mumbai with a current capacity of 348MW has an additional 118MW capacity expansion (work in progress).

Chennai, with a current capacity of 86 MW has an additional 52 MW capacity expansion (work in progress). Delhi NCR, Pune, Hyderabad, and Bangalore are all in expansion mode of their respective Data Center facilities. Most states now have their own Data Center policies luring investors and builders to create new facilities.

Mumbai and Chennai are the top two Data Center destinations in India- both being port cities (an important consideration since undersea cable landing stations are easily available). Submarine fiber capacities are a big requirement for Data Centers as extensible fiber with global connectivity loops is critical to growing into a global class Data Center. Of 20 International fiber terminations in India, 11 are in Mumbai and 6 in Chennai for this same reason. Traditionally Mumbai has been the financial hub of India and a large number of MNCs are headquartered there which fuelled demand for international fiber termination points many years ago.

It is estimated that Indian Data Center capacity will grow to about 1400 MW by 2025, adding fresh capacities of about 648MW between 2023–25. The demand will be about 9.1 m Sqft by then with fresh investments of about $4.8bil (sources: JLL, and other news reports).

Large Data Center Players’ India Capacity Summary: Nxtra by Airtel: 12 large and 120 edge data centers across 65 locations with a total capacity of 200 MW. Plan to double to 400 MW in the next 3 years.

CtrlS: Operates 10 D/Cs with a combined capacity of 120 MW across 5 cities in India. The plan is to expand to 21 by next year.

NTT: Currently owns 16 facilities with a total capacity of 204 MW. Plan to expand to smaller locations.

SIFY: Currently has 11 D/Cs with a total capacity of 100 MW. Plans to add 350 MW in the next 4 years.

Undersea Fiber Capacity and Landing Stations are Critical Enablers:

Telcos Jio, airtel, and Vodafone idea are indeed some of the biggest drivers as they have a captive need to provide better experiences for their consumers as well as provide facilities for their enterprise customers. @Jio with its ambitious 200Tbps #IAX, IEX undersea global fiber circuit, and Airtel with its 365k RKms of fiber around the globe are investing progressively to ensure their own fiber assets are appropriately developed to take on upcoming demand.

Airtel’s SEA-ME-WE 6 project is expected to go live in 2023/24 and will be a 20k RKm undersea fiber linking Singapore, India with the Middle East and Western Europe. This project will have landing stations in Chennai, and Mumbai to directly connect Airtel’s Nxtra Data Center (11 large Data Centers and 120 Edge Data Centers) network for seamless global connectivity.

Kotak Mutual Fund even launched a Data Center dedicated MF (for about $600 mil) focusing on raising capital for the Data Center facilities alone. Such a super-focused sector-specific MF has not been seen in India so far (most telcos either went public or raised large PE rounds before listing in public markets). More on this here.

Last year, Japan’s NTT Ltd. announced a large expansion of Data Center facilities in India to 16 locations covering 2.5m sq ft (about 220 MW capacity). Having entered India in 2021 with investments in warehousing, Blackstone Inc., moved into Data Center space in 2022, focusing on two large hyper-scaler facilities in Mumbai and Chennai (with an estimated combined capacity of about 600MW which are both works in progress).

Start-Up Opportunities In this Growth Engine

There are tons of opportunities for start-up products and technology solutions in this sunrise sector. If you are building an innovative product in the area of Smart access control, IoT solution for asset monitoring, automated climate control, load balancing between Edge Data Centers, AI bots for full-building monitoring and control with graphical UI, and other solutions — you must engage with the players here to ensure your product gets plugged in. Explore the solution suite so your product can go places. For support be in touch, subscribe to these industry insights, and get plugged in.

Sridhar Pai Tonse writes about life, tech, markets, and startups. He is an expert on Strategy and Lead Generation for startups. Follow him on https://youtube.com/@tonsepai and visit https://tonsepai.com. For more https://tonsetelecom.com.