Data centre in India: 2022 year-end update and three year outlook

Indian Data Centre (DC) industry has witnessed tremendous growth in the last three years with industry doubling to 722 MW at the end of 2022 from 350 MW in 2019. The growing public cloud adoption has led to leading global hyperscalers expanding their operations by increasing their pre-commitments across established and emerging DC hubs. The high pace of India’s digital transformation means further growth of the DC industry in the coming years.

Some of the key highlights of the report are:

• Industry size doubled in 3 years from 350 MW in 2019 to 722 MW by 2022
  
• 2022 witnessed an all-time high absorption of 160 MW
• 8% y-o-y growth in absorption witnessed during H2 2022 at 71.8 MW
• 36% y-o-y growth in supply with 85.1 MW addition during H2 2022
• 678 MW capacity addition by 2025 would lead to 9.1 mn sq ft of real estate demand
• 350 MW hyperscale pre-commitments to drive growth ahead

The DC industry received a big boost through policy incentives. Various States announced dedicated DC policies to attract industry players. The draft Digital Personal Data Protection Bill, 2022 is expected to lay down roadmap for data storage and usage which has long-term implications for the DC industry. The growth of the industry is also closely linked to the technology developments of which the rollout of 5G is likely to usher the next level of growth. The efforts by the industry to become more energy efficient through sustainable practices and the adoption of energy-efficient technologies are gaining prominence.
 

Key trends

350 MW hyperscale pre-commitments to drive calibrated supply

• DC industry witnessed nearly 4 times growth in demand from hyperscalers during 2018-22 period as compared to previous 13 years
• IT infrastructure migration from captive to cloud services led to high demand for public cloud services
• Hyperscale pre-commitment of 350 MW during 2023-25 reflects strong demand growth for DCs
• DC players have calibrated supply in line with hyperscale precommitments

Hyperscale self-build strategy affirms long-term growth prospects of DC industry

• Strong demand from large domestic market, policy incentives and stability have led to a self-build strategy by two global hyperscalers
• Hyderabad has emerged as the preferred option due to state incentives, lower land cost and power availability
• Hyperscale demand for colo operators to continue as self-build operations may take few years to Stabilize

Constraints of key inputs and rising cost to impact supply pipeline

• Record supply growth has put severe constrain on the availability of skilled resources leading to construction timelines getting pushed ahead by few quarters
• Global supply chain disruption has hampered the availability of critical IT components leading to extended timelines
• Commodity-led imported inflation has led to an escalation in development costs which may prolong construction timelines and impact supply 
• Supply constraints are expected to ease in 2023 due to local sourcing and expected normalization of supply chains

Draft Digital Personal Data Protection Bill 2022 aiming for stakeholder-based evolution

• Bill relates to the processing of digital personal data which is either collected online or collected offline but is digitized
• Consent or deemed consent is mandatory for processing after providing notice in clear and plain language
• Establishment of a Data Protection Board proposed to adjudicate on the matter of data protection.
• Bill allows for cross-border storage and transfer of data to certain notified countries and territories
• Significant penalties for data breaches have been proposed ranging from INR 50-500 crore
• Exemption from regulations to Government agencies for matters of National security has been specified

Outlook

Industry capacity to reach 1.4 GW by 2025

• 678 MW of supply addition is expected based on pre-commitment deliveries over the next three years
• Mumbai (Navi-Mumbai) region is expected to add 4.7 mn sq ft followed by Chennai at 2.3 mn sq. ft and NCR-Delhi at 1.0 mn sq ft.
• USD 4.8 capital investment outlay is expected for 678MW supply additions by 2025. DC operators are expected to tap global investors or from alliances to fund the supply additions
• Mumbai with 54% share would drive the investments followed by Chennai (22%) and NCR-Delhi at 11%

The robust prospects of the industry have attracted global players as well as new entrants to be part of the growth story. Most players have adopted a land banking strategy to garner hyperscale demand. On the other hand, setting up captive facilities by hyperscalers through self-build is gaining ground.