The technological landscape in India has shifted dramatically over the last five years, and the country is making fast-paced progress toward a full-fledged digital economy. The rising adoption of digital transactions, IoT and smart devices have created a significant demand for digital services and more importantly, data centres.
What’s more, the disruptive actions to ensure business continuity during the pandemic that began during 2020, are becoming permanent with companies and government agencies alike moving to advanced IT strategies. At present, the data centre industry is buoyant in cities of Mumbai, Chennai, NCR, Bengaluru and Hyderabad. Kolkata and Pune with heightened supply and demand activities.
INVESTMENTS IN INDIAN DATA CENTRES
Year 2021 witnessed joint investment of $2 Bn by Brookfield Infra-Digital Realty, $1 bn by joint venture between Everstone Capital and Yondr and an announcement by Adani Enterprises & EdgeConneX, to establish 50:50 joint venture in data centres. Cisco’s Duo also launched a data centre in India to meet data localisation requirements. DLF has announced an investment of Rs 1,700 crore in office space and a data centre. Yotta Infrastructure, a subsidiary of the Hiranandani Group, is constructing two more data centre buildings in Greater Noida at a cost of Rs 2000 crore. Both buildings will have a capacity of 30 MW and will be operational in January 2024.
Equinix, a data centre infrastructure company, is also investing USD 9 million to acquire approximately 5.5 acres in Chennai to expand in India. CapitaLand also plans to build more data centres in India, including in Hyderabad, Bengaluru, and Noida. Sophos, a cyber-security solutions provider based in the United Kingdom, has opened a data centre in Mumbai to meet local demand for its cloud management platform and to comply with local data sovereignty regulations. NTT recently opened its latest hyperscale data centre campus, NAV1A, in Mahape, Navi Mumbai, the first in the satellite city. NTT has 12 data centres in India spread across Mumbai, Bengaluru, Delhi NCR, and Chennai, with a total facility power capacity close to 220 MW and plans to open eight new data centres by 2024
THE GOVERNMENT SUPPORTING POLICIES
In the budget 2022, the Finance Minister accorded Infrastructure status to data centres. Several of the State Governments too were quick to respond with initiatives & framework for facilitating the development and operation of Data Centers in India, through separate policy announcements. The States, within India that have announced Data Center Policies are – Telangana, Uttar Pradesh, Tamil Nadu, West Bengal and Odisha. Several other States are also in the process of announcing their own separate policies.
The infrastructure status to the data centre industry will help companies in availing easier credit and managing resources. It will also augment investment in the sector and boost country’s required digital infrastructure. Furthermore, government plans to give incentives to the tune of Rs. 12,000 crore to Rs. 10,000 crore to companies to set up data centres in the country. Under the hyperscale data center scheme, the government is targeting investment of Rs. 3 lakh crore in the next five years and is planning to dole out anywhere between 3-4% of capital investment as incentive to companies along with other benefits such as real estate support and faster clearances.
THE REAL ESTATE DEMAND
Most Data Centre operators have been acquiring land parcels at key data centre hubs which has led to an appreciation in land prices in preferred cities. Some operators have modified existing buildings to reduce time to market, while some cloud players with self-build ambitions have acquired land at new locations in line with their growth strategies.
Large data centres are looking to primarily set up facilities in major cities and most of the current demand is focused on cities like Mumbai, Chennai, Noida and Hyderabad, followed by Bangalore, Pune and Kolkata.
As per JLL, the Indian Data Centre industry is expected to create a demand for 9.7 mn sq ft by 2024 for new capacity building across India’s leading cities. Mumbai, Pune, and Chennai together accounted for 83% of the total supply during 2021. More than 180 acres of land was transacted for colocation data centres across major markets in India In 2021. Out of which, Navi Mumbai alone witnessed about 100 acres being acquired by data centre operators.
Owing to its high share of capacity addition, Mumbai is expected to create demand for 6.18 million sq ft, going forward. The comparatively high land cost of the city vis-à-vis other DC hubs will lead to a higher outlay of US$ 3.3 billion for setting up data centres in the city. In the Mumbai region, the Navi-Mumbai suburb has emerged as a preferred location due to its high-capacity power station, developed territorial cable connectivity, and availability of land at a lower cost than the mainland. As Chennai has similar advantages, it would follow with 2.03 million sq ft of real estate space addition at an investment of US$ 1 billion.
In case of services where operators need to ensure minimal to zero latency – primarily for edge services such as smart cities, IOT applications for home or industries, etc. there is merit in storing data close to end users i.e. Tier II cities as well. Another reason for tier II cities seeing rise in data centres in future will be the increase in data requirements because of rising decentralised workforce. Already evident is some traction to set up small data centres of sub 2 MW capacities in Tier II cities though their scale will be limited. Large investments in this space are expected in Tier-2 cities such as Ahmedabad, Coimbatore, Bhubaneshwar, Jaipur, Kochi, Nagpur, Vizag, and Lucknow.
CHALLENGES TO OVERCOME
Power Supply: Data centres need continuous power supply and most cities have a single power service provider with no alternate sources of power. Unstable power supply and heavy reliance on generators is a major operational task for operators. Close partnership with the relevant government bodies along with a local partner can help overcome any logistical challenges.
Fibre Network: India’s current fixed broadband speed is relatively lower than global average and is an impediment to efficient data centre operations. A sufficient infrastructure of fibre network is lacking in India and still a work in progress.
Location: Site due diligence is a key component and issues that are not identified in time could lead to a pause
in construction and significant delays. Seismic activities, flood records, flight paths, access to transportation facilities and critical utilities, as well as proximity to other industrial areas are important parameters to be taken into consideration. Thus, procuring land banks with these particular set of requirements is a challenge.
Workforce: Global standard talent in the data centre business is lacking. It requires workforce to have specialised knowledge in power, fibre, mechanical cooling, security, civil engineering, fundamental technical skills such as programming languages and tools.
Green Technology: Data centres consume a lot of energy. Because of their higher power consumption, many businesses are basing their data centre programmes on green technologies and an active renewable energy strategy.
Cost: Data centres are capital intensive, involving high real estate costs, wide area network connectivity and equipment costs.
Policy: The current building byelaws for commercial buildings are not suitable for data centres and lead to space and cost inefficiencies. Concerted efforts are needed from government to streamline tax structures and stamp duty exemption on land purchase, and different set of norms for data centre buildings.
ACCORDING TO A SAVILLS INDIA REPORT, 5G, IOT, AI, AND CLOUD ARE EXPECTED TO DRIVE GROWTH FOR 15-18 MILLION SQUARE FEET OF THE DATA CENTRE.
THE JOINT PARLIAMENTARY COMMITTEE (JPC) RECENTLY ADOPTED THE REPORT ON THE PERSONAL DATA PROTECTION BILL 2019. A MANDATE ON DATA LOCALIZATION WILL BE A MASSIVE BOOST FOR LOCAL SERVICE PROVIDERS AND THE DATA CENTRE COMPANIES.
A RECENT DATA FROM CUSHMAN & WAKEFIELD SHOWED THAT A TOTAL $11.4 BILLION INVESTMENT HAS BEEN PLANNED AND COMMITTED FOR DATA CENTRES DEVELOPMENT IN THE COUNTRY AND GLOBAL FIRMS’ CONTRIBUTION OUT OF THIS IS MORE THAN 65%. IND-RA ESTIMATES THAT TOTAL INVESTMENT IN THE DATA-CENTER INDUSTRY IN INDIA TO TOUCH RS 70,000 -72,000 CRORE OVER THE NEXT FIVE TO TEN YEARS.
MUMBAI AND CHENNAI TO LEAD IN CAPACITY EXPANSION AND ARE EXPECTED TO WITNESS HIGHER GROWTH OWING TO THEIR INFRASTRUCTURE ADVANTAGES. HOWEVER, LANDLOCKED LOCATIONS LIKE NCR-DELHI WOULD ALSO SEE GROWTH IN CAPACITY ADDITION DUE TO GOVERNMENT-LED DIGITAL INITIATIVES AND DATA DEMAND. PROACTIVE STATE POLICIES, MEANWHILE, ARE CREATING HYDERABAD INTO AN EMERGING LOCATION FOR HYPERSCALE CLOUD PLAYERS.