India to see Rs 1.5 lakh cr valued investment through data centers in the next 6 years

Amid the growing data localization demand in India, the country is likely to witness 4,900-5,000 MW of capacity with an investment of Rs 1.5 lakh crore in the next six years, a report showed on Tuesday.

The industry revenues are expected to increase at a CAGR of around 17-19 percent during FY2023-FY2025, supported by an increase in capacity utilization and ramp-up of new data centers, according to credit rating agency ICRA.

To cater to the increasing demand, Indian corporates like the Hiranandani Group, the Adani Group (in JV with EdgeConnex), the Reliance Group and foreign investors like Blackstone, CapitaLand, Princeton Digital Group (PDG) and Big Tech firms like Amazon and Microsoft have started investing massively in data centers in the country.

"ICRA expects the sector to witness a six-fold increase in capacities in the next six years, with Mumbai, Hyderabad, and Delhi-NCR to account for 70-75 percent of the installed DC capacity," said Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA.

Mumbai and Chennai have maximum landing stations, with the former being the preferred location for a data center operator. Chennai's reputation took a dent due to the floods of 2017 and 2018.

"The other key emerging locations are Hyderabad and Pune, wherein some of the large hyper scalers are setting up huge data centers closer to their operation bases in India," Reddy added.

The key triggers for the digital explosion in India are the increasing internet and mobile penetration, the government's thrust on e-governance/digital India, the adoption of new technologies (Cloud computing, IoT and 5G, etc), the growing user base for social media, gaming, e-commerce and OTT platforms.

"This, coupled with favorable regulatory policies, providing infrastructure status to data centers, special incentives like land at a subsidized cost, power subsidies, exemptions on stamp duty, discounts on the usage of renewable energy and procurement of IT components made locally, and other concessions are expected to boost data center investments in the country," Reddy explained.

Datacenter players are also expected to invest in green power to meet their power requirements. With the increase in revenues and better absorption of fixed costs, operating margins are likely to improve and remain in the range of 43-45 percent during the next three years, the report noted.