India stands at the cusp of a transformative shift from an emerging market to a developed economy, with digitisation poised to play a pivotal role in this journey. Central to this digital revolution is the surging demand for a robust data centre infrastructure, which has become the backbone of India’s rapidly expanding digital economy. By Navneet Sahu, assistant vice-president loan syndication, Anik Kumar Deb, assistant vice-president real economy group and Sonal Gupta, manager loan syndication, Axis Bank
The need for advanced data centres in India has never been more critical, as businesses increasingly embrace newer technologies and move to digital platforms to achieve scale and reach a burgeoning young population of tech-savvy data-hungry consumers across the country.
Cutting-edge technologies such as 5G, AI and Internet of Things are accelerating this evolution, creating new opportunities and redefining possibilities in India. Complementing this technological momentum is the Indian government’s steadfast commitment to fostering a supportive ecosystem. Together, these synergies underscores a decadal growth opportunity for the DC industry.
Current landscape
India’s DC landscape is diverse, catering to various business needs and technology requirements through distinct types of facilities. Broadly, DCs are classified as:
* Hyperscale DCs which are operated by global tech giants and handle large-scale workloads like cloud, AI, etc – offering high efficiency and scalability;
* Colocation DCs which provide shared infrastructure where multiple businesses rent space and resources making them cost-effective and flexible;
* Edge DCs which are decentralised facilities closer to users and thus, reduce latency;
* Enterprise DCs, which are owned by individual organisations and cater to industries requiring high security and regulatory compliance.
Approximately 95% of the current DC capacity in India is concentrated in six major cities, with Mumbai and Chennai the top performers owing to well-established undersea cable infrastructure. Mumbai, in particular, benefits due to its strategic central location, reliable power supply, and presence of multiple cable landing stations. Currently Mumbai accounts for over 50% of the total capacity and is projected to remain the focal point for future DC expansions in the country.
Figure 1
Key DC players
India’s DC industry is witnessing substantial capital inflows from diverse sources including hyperscalers like Google, Microsoft, Amazon Web Services, pure-play companies like Global Data Centers NTT, ST Telemedia Global Data Centres, and infrastructure players like Adani Group, AdaniConneX.
The market is currently dominated by players such as: NTT, STT, CtrlS, Sify Technologies and Nxtra Data Limited, and as of March 2024 they collectively hold 85% of India’s operational DC capacity.
However, rising demand of DCs has attracted new entrants such as Yotta, Digital Connexion, Lumina CloudInfra, CapitaLand and Digital Edge – all making significant investments to capture this booming market.
DC sector growth
The evolution of India’s DC sector has unfolded across distinct growth phases since the establishment of the country’s first commercial DC by Sify Technologies in 2000.
* 2000–2007: This early phase was shaped by the dotcom boom and broadband policy, driving an annual capacity addition of 12 MW.
* 2008–2020: The market entered a new phase with telecoms advancements including rollout of 2G/3G/4G, availability of cheaper data with rise of new telecom player – JIO and widespread adoption of Unified Payments Interface leading to an annual capacity addition of 32 MW.
* 2020–2023: The industry witnessed annual addition of 100MW–150MW fuelled by accelerated adoption of emerging technologies like cloud, AI, 5G, etc. Notably, capacity absorption kept pace with utilisation rates increasing from 82% in 2019 to 93% in 2023.
Key demand drivers
* Underpenetration of DC - Despite the impressive growth in the past few years, India’s DC capacity remains significantly underpenetrated as depicted below. While the country generates nearly 20% of the world’s data, it accounts for only 3% of global DC capacity. This disparity underscores the immense potential for further expansion in the sector.
Table 1
* Penetration of 5G in the country - With affordable 5G services in the country and coverage of 90%, 5G subscriptions are projected to reach over Rs27cr by the end of 2024, accounting for 23% of the total mobile subscriptions in the region which are further expected to reach around Rs970cr by the end of 2030, accounting for 74% of mobile subscriptions.
* OTT, content generation, e-commerce - Due to being one of the youngest populations in the world and supported by low data tariffs, adoption of smartphones has increased significantly. Thus data storage requirement from e-commerce like Amazon, Flipkart, etc, OTT platforms like Netflix, Disney+ Hotstar and content sharing social media platform like YouTube and Instagram, have grown manifold and is expected to increase exponentially.
* Advanced technologies - The adoption of advanced technologies based on AI, machine learning and cloud computing has been an increasing trend. These require higher computing power and larger servers.
* Data localisation - Storage of Payments System Data, 2018, instructed for storage of data involving payment systems operated by companies providing payment related services in India to be exclusively stored within the country.
* Regulatory support - The government has played a pivotal role in fostering a conducive environment for the growth of Indian DC industry. While the Data Center Policy 2020 provided a roadmap for DC growth, granting infrastructure status to DC in the Union Budget 2022–23 enabled easier access to long-term financing at competitive rates. Furthermore, various state governments have formulated DC policies to provide incentives such as stamp duty exemption, power subsidies, rebates on property taxes and single window clearance etc. Data Centre Incentivization Scheme which provides fiscal and non-fiscal incentives for developers to use domestic equipment and setting up of four Data Centre Economic Zones will further provide the necessary fillip to DC industry
Taking into account ever increasing demand, the DC industry in the country seems to be at an inflection point. According to a CBRE report, India leads the Asia-Pacific region excluding China in DC capacity, with 950MW in 2024. CARE ratings projects this capacity to surpass 1,950MW by 2026. This will be supported by an investment outlay of Rs50,000–55,000cr. Reflecting this growth, India’s DC market value, which stood at US$4.35bn in 2021, is forecasted to reach US$10.09bn by 2027, achieving a remarkable 15.07% CAGR.
Figure 2
ESG aspects
* Environmental: Data centres are significant energy consumers, accounting for 1%–3% of the world’s total power usage, and contribute up to 3.7% of global carbon emissions. As the DC sector is experiencing rapid growth, integrating sustainable operational practices has become critical.
While global leaders in the industry derive approximately 75% of their power from renewable sources, DCs in India lag behind, with renewable energy accounting for less than 5% of their power consumption. However, this figure is projected to rise to 20%–25% by 2028.
Adherence to key metrics such as power usage effectiveness and water usage effectiveness is becoming a standard. Innovations like direct-to-chip cooling systems, closed-loop water systems, and power purchase agreements from renewable power sources are helping reduce the environmental impact. Proper e-waste management and recycling are also gaining importance as critical components of sustainability strategies.
* Social: DC industry supports significant job creation, employing over two million people globally, with an additional 300,000 jobs expected in India by 2025. By prioritising employee health, safety, and inclusivity, DCs are aligning with broader ESG goals.
* Governance: Publication of sustainability reports adhering to international standards such as LEED Platinum and ISO certifications is enhancing transparency and stakeholder confidence.
These concerted efforts underscore the sector’s commitment to balancing growth with environmental stewardship and social accountability, making it an increasingly attractive investment avenue in the project finance landscape. On the financing side too, lenders are adopting frameworks to support sustainable financing. For example, Axis Bank has adopted its Sustainable Financing Framework to build ESG principles into its business strategy and conduct.
Analysing DC proposals
Axis Bank has been a key financing partner for DC players in the country and has financed more than Rs7,500cr for a capacity of 120MW to both existing and new DC operators. We have witnessed emerging technological trends and the evolving financing needs of the industry. In general, some of the key aspects evaluated by lenders when financing a DC are as follows:
* Construction risk: Since a DC has specialised design parameters, it is important that the DC player has sufficient experience in constructing DCs in a timely manner. To minimise this risk, cost overrun support is typically sought from the sponsor.
* Offtake risk: Given the growing demand for DCs, financing has been provided to projects even without offtake contracts being signed upfront. However, lenders do view projects where the DC operator has executed an offtake agreement/letter of intent upfront (for partial or full capacity) more favourably.
* Revenue model of data centre: Revenue can vary significantly and is dependent on various factors such as type of DC, kind of additional services provided (eg cloud services), whether DC is built-to-suit or not.
However, revenue for a Type-III DC with limited managed services depends largely on type of tenants. While the trend in rentals for hyperscalers is observed to range between Rs6000 and Rs6500 per kW per month, for other smaller colocation tenants, it can range between Ps8000 and Rs9000 per kW per month.
DC operators can either opt to lease out entirely to hyperscalers where the rentals are lower but tenor of contracts are generally longer, thus, providing revenue visibility for longer term and lower risk of non-occupancy, or else, opt for a colocation model where the rentals are higher but tenors are shorter; or even a mix of the two may be opted by a DC operator. Instances where the contracts have not been tied up, lenders take assumptions on rentals based on prevailing rental rates.
* Project cost: Typically, the project cost for a DC comprises these key components:
i) Land cost. This is the acquisition cost for the land for the project. The land can either be acquired or taken on lease for a long tenor. This cost is dependent on factors like location of DC and whether the land is bought or leased.
i) Core and shell work. This generally refers to the cost incurred for preliminary works, civil works, façade works, etc. This cost is proportional to the area under development.
iii) Mechanical electrical plumbing and long lead equipment. This involves the major cost in the project which is highly dependent on the type of instruments being installed. The cost comprises electrical, HVAC air-cooled, liquid cooling primary and secondary circuit, security system, IT network, chillers, fan wall units, diesel generators and other equipment.
iv) Substation. This comprises civil works for gas insulated substation building, sub-station equipment, power extension charges.
The trend in project hard cost is generally seen in the range of Rs45–Rs57/MW. Apart from the above hard costs, the project cost would generally also involve soft costs viz approval cost, consultant costs and interest during construction.
DC operators are also progressively opting for a model where they lease out completed buildings from a third party and then install the MEP and equipment as per their own design specifications. This model shortens the operation timeline of DC and also provides better visibility in terms of rentals tie-up with tenants.
* Financial metrics: For a DC project, the acceptable tenor for the lenders is seen to range between 10 and 12 years post construction period with debt contribution ranging from 70%–75% of the project cost. Lenders stipulate debt coverage metrics like average debt service coverage ratio, which are typically kept above 1.30 times while doing the debt sizing.
* Security structure: Lenders generally stipulate security over immovable and movable assets, cashflows, pledge over shares and quasi-equity instruments.
* Pedigree of sponsor: While the other factors are project-specific, credentials of the sponsor play an important role for a lender to make a financing decision. Lenders typically consider aspects like past experience of the sponsor in developing and operating DCs in local and global DC market and its ability to arrange funds for the project.
Long runway ahead
The data centre industry in India has come a long way from its nascent phases starting more than two decades ago. Driven by multiple demand drivers, the industry today offers a compelling opportunity for the DC players, both local and global; and project financiers to participate in a growing infrastructure-driven sector. The participants are eager not only to be a part of this multi-year growth opportunity but are also adopting practices to attain the objective of long-term sustainable growth.
References
- https://www.careratings.com/uploads/newsfiles/1715156271_Data%20Center_CareEdge%20Report.pdf
- https://www.ericsson.com/en/reports-and-papers/mobility-report/reports/november-2024
- https://www.ibef.org/blogs/booming-data-centre-growth-in-india#:~:text=According%20to%20Cushman%20%26%20Wakefield%20report,reach%201.03%20GW%20by%202028.
- https://www.cbre.co.in/insights/articles/indias-booming-data-centre-market-a-powerhouse-for-the-digital-age
- https://www.crn.in/columns/sustainable-data-centres-navigating-the-path-to-net-zero-energy-consumption/
- https://www.datacenterdynamics.com/en/opinions/navigating-the-dynamics-of-creating-sustainable-data-centers-in-india/
- https://www.avendus.com/india/reports/74
- https://www.icra.in/CommonService/OpenMediaS3?Key=b08638cb-2a72-433a-8406-3778bc208a75
- https://cxotoday.com/press-release/indias-first-commercial-data-center-completes-21-years-in-operation/
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