Data centre players are expecting revenues to record a 20% year-on-year growth.

Rao Srinivasa

Managing Director, Data Centres, Project Management, Colliers India

How is the data centre segment evolving in India?

Indian data centre (DC) market is currently going through massive action (and attention). Existing data centre operators who secured the long-term commitments and contracts are rushing in delivering the build space mostly for hyperscale Cloud operators. The majority of the action we are seeing is in the hyper-scale co-lo data centre space, where there is visibility from Cloud operators and DC operators due to the sheer size of these data centres.

Enterprise Data Centres, on the other hand, are premises hosted to support the technology companies, financial institutions, gaming companies, government organisations, telecom service providers, OTT players etc. These data centres come with lesser capacity, ranging from 2 MW to 5 MW IT load capacity. Bangalore is still housing the second-largest IT load capacity of Enterprise Data Centres, after Mumbai due to its technology hub status.

India has only two internet submarine cable landing stations, in Mumbai and Chennai, connecting India's internet traffic to the western hemisphere and eastern hemisphere respectively. These are the primary locations for the international DC operators to step into the country. Due to this rush, there is congestion in terms of available land or power in the most sought-after locations in Mumbai (Navi Mumbai) and Chennai (Ambattur & Siruseri).

While the build for hyper-scale DCs is happening at primary Tier-1 locations, there is an expansive development happening in strengthening the same reach to remote locations. AWS, holding over six years of the order book for their data centre space in Asia, has released a revised strategy for Hub & Spoke arrangement. Their focus is on expanding the data centres in the Tier-2 and Tier-3 locations, to strengthen their reach, with one hyper-scale data centre park in Hyderabad. Their other hyper-scale requirements in other locations are mostly provided by the co-lo DC operators. Airtel Nxtra with huge networking and fibre capacity across the country has also highlighted its focus on connecting both Hyperscale and Edge Data Centres across the country to enhance low latency levels and data-carrying capacity in the remote areas. CtrlS and NTT-Netmagic are the other two co-lo Hyperscale operators looking at expanding their reach across the country, to remote locations.

5G is considered to be the game changer, not only for the data centre operators but also for the new evolving technology players like AI/VR, autonomous vehicles, electric vehicles, IOT devices, healthcare, gaming, crypto, etc.

5G can increase data transmission speed by up to 100 times and decrease latency from about 20 milliseconds to one millisecond, which is the speed at which the data is transmitted between the devices.

Currently, 5G trials are going on in India and is expected to be rolled out by 2022. With this, we will see another phase of DC evolution for building the data centres across the country, in Tier-2 and Tier-3 locations in addition to the Hyperscale Data Centres in the Tier-1 Cities. While the Hyperscale Data Centres in Mumbai, Chennai, Noida, Hyderabad, Pune and Bangalore are critical to jumpstart the race and meet the raising digitisation requirements in the country; reaching to the Tier-2 & Tier-3 locations will stabilise the current rate of the data generation that is happening at the source anywhere in the country.

This is not only essential from the digitisation drive but the rate at which the data consumption is rising at an exponential phase in other areas like the use of IoT devices in the household arena including electric vehicles, autonomous vehicles, AI/VR penetration, gaming, crypto and the Metaverse. Metaverse, which is attracting the attention of retail and banking giants of late, is expected to shift the entire e-commerce from mobile phones to Metaverse in the coming years.

Overall, it is an exciting phase for the data centre industry and the rapid changes that are happening on a regular basis are rewriting all MW capacity projections for India, with the  same speed.

What are the major demand drivers of the data centre market in India?

There are multiple drivers, which are pushing the demand for the data centre market. The primary driver is government's Draft Data Localisation Policy, which is pushing all the major MNCs and indigenous firms to relocate their data processing and storage to India. Not only the private sector, but there are also quite a handful of national banks as well as government entities, that held some amount of their data outside India. With this policy, there is a big push in the market for data centre space in India. India's federal bank RBI is also walking the talk on data localisation, penalising the errand banking entities that are not following the localisation policies strictly. This is another driver for the rush for data centre space in the market.

Growing digitisation is the second driver. In December 2020, McKinsey projected India as the world's second-fastest growing digital economy contributing $355~$435 billion to India's GDP by 2025.These numbers got multiplied by 2.5 times by March 2022, with a growth projection reaching $1 trillion by 2025.  Digitisation is at a rapid pace in raising India's requirement for more and more data processing stations, with low latency and higher bandwidth. COVID has fastened the digitisation process across the country too.

Digitisation is also coming with the increased number of mobile users in the country. According to TRAI, India has 1.142 billion mobile subscribers with an active subscriber base of 1.016 billion, as on May 12, 2022. Over 90% of these subscribers are smartphone users. These billion subscribers are contributing heavily to transforming the country towards digitisation. Average data consumption in 2014 was 0.3 GB per month but that has gone up to 17 GB per month in 2021 and is growing at the rate of 26.6% year-on-year in India. Most of the data consumed on smartphones are for social media, which is much accessible due to the availability of smartphones and low internet rates.

It is also important to make a mention about the great work that is being done by the telcos, in expanding the fibre footprint across the country. This fibre connectivity is boosting the lowlatency and bandwidth, creating the eco-system for the increase in smartphone sales even in remote areas of the country.

Beyond this, the drive is coming in from the Gen-Z population, which is spending an average of 8 hours per day, on smartphones, taking the business away from the wired networks to mobiles. Covid has also played a key role in driving the data consumption, with OTT platforms, Remote working, Contactless business transactions etc.

How is the government's digitalisation policy driving the demand for more data centre facilities in the country?

The National e-Commerce Policy purports to grant 'infrastructure status' to data centres and server farms in India, to facilitate the goal of India's 'Digital Economy'. Infrastructure status by getting listed under the Harmonized Master List of Infrastructure Sub-sectors by the Department of Industrial Policy and Promotion (DIPP) entails the data centre operators to easily get credit to enter into data centre operations. This is accompanied by tax benefits, custom duties rebates and also a 2-year sunset period before localisation becomes mandatory.

In addition to the Central Policy, the state governments of Maharashtra, Telangana, Tamil Nadu and Uttarpradesh released separate policies to help support the data centre operators establish in those states. Some of the features include tax rebates, preferred allocation of land and power, single-window approvals etc.

Market analysts believe if these measures are implemented, it can attract national and international investments. India has recorded over 10 such investments in data centre space in 2021. As things stand, DC players are expecting revenues to record a 20% year-on-year growth.

How are sustainable solutions making an important presence in data centre facilities?

Data centres across the globe are consuming about 2% of the overall power in a year, which is more than what the global airline industry consumes for the same period.

Shifting the dependence on renewal energy sources, like creating solar farms within the data centre park or nearby locations to provide the power directly to the data centres will help offset the carbon footprint. Some of the major DC Hyperscale Operators like NTT, Nxtra and Adani Connex have already initiated solid plans in this regard and investing in the solar farms. Where there is no space available, the data centre operators are also looking at remote solar/wind generating farms and by wheeling and uploading it to the grid, they are offsetting their carbon footprint. However, this is only possible if the renewable farm and the data centre are located in the same state.

India's ambitious target to achieve a renewable energy capacity of 450 GW by 2030 will help the future of the data centre industry in India. The government's interest in promoting off-shore wind farms will also help the DC operators in  the primary locations on the coastal areas to drive growth.

Data centres are power-hungry and the key is to the planning for the most efficient data centre that operates at a lower PUE. When we talk about planning for sustainable solutions, two things come into the picture. Design the right facility with optimum infrastructure nearer to client requirements with modular expansion. The second thing is the planning for total cost of ownership at the planning stages. This will help to reduce the carbon footprint and also reduce the wastage of power. These changes are
already happening in the market but need to get pushed further.

Water is another commodity that is becoming scarce for data centre operators in some parts of the country. Some players in the coastal areas are also exploring seawater for cooling requirements.

Most recent and the latest topic on sustainable cooling solutions is liquid cooling. Liquid cooling racks can accommodate the highest density of the rack, going from 75~100 kW per rack. In liquid cooling, all the rotary elements like the cooling fans are removed, no external cooling is needed for the racks (only liquid is cooled through condensers) and thus the highest PUE of 1.05 to 1.1 can be achieved. Liquid cooling in total is not happening, but a few liquid cooling racks are what the DC operators are trying these days, with a cautious approach.

What opportunities do you visualise for global players and technologies in the Indian data centre market?

Primary focus of the global players is Hyperscale co-lo data centre facilities. Currently, there is a bigger gap between what is being generated to what is being processed/stored. This gap is growing at an exponential basis due to the digitisation drive as well as other reasons, creating the need for larger co-lo Hyperscale data dentre facilities. As per WEF, nine out of every ten people aged six and above would be digitally active by 2030. This indicates the drive for data generation and storage growth over the years.

The number of standalone co-location facilities and hyper-scale data centre facilities in India are much lower than the managed hosting facilities and do not meet the current capacity requirement. Logistics & transportation, BFSI, e-commerce, healthcare, gaming and government agencies are creating major demand for the co-location facilities. 

Global players who are establishing their presence are operating in the Hyperscale co-location facilities. As the demand for data processing and storage is growing, the gap is also widening rapidly. With an estimated growth rate of 20% year on year, the Indian market is offering the best returns coupled with the favourable government policies at the Central as well as state levels with many tax incentives. The data centre industry being given the status of infrastructure is another major step for these global players to bring the investments at much lower borrowing rates. This is helping the industry immensely, helping the global players as well as local players.

We are also seeing the global players’ entry via M&A and JV route, along with the locally established players in the market. This is showing a strong trend at the moment, as it helps the global players to have an early start, setting aside all regulatory related challenges with the Indian partners.

Talent pool is another area that is supporting the global players. India produces more than a million engineering graduates every year with its vast network of engineering colleges across the Country. It is easy to identify the right resources in India and train them to do the job, particularly in sensitive operations like data centres. While the resourcing costs are a fraction of global costs, the Indian talent is definitely at par with their global colleagues.

How do you look at the future of data centre market in India?

The Indian market is expected to grow at a rapid pace for the next few years in developing the Hyperscale data centre infrastructure. The Hyperscale data centres and Edge data centres support the growing needs of data processing and storage both at the primary locations as well the remote locations. 

The Hyperscale co-lo facilities are in build mode at the moment to accommodate the existing capacity requirement for the cloud operators, banking, government and other tech companies. All these planned capacities will be delivered and consumed in the next 5~10 years time with a parallel growth happening on the smaller edge locations.

Once the Hyperscalers have enough capacity, the focus is supposed to be shifted to the  Edge data centres, to create the infrastructure  for computing at the edge locations in the  remote areas.

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