DIGITAL Transformation Drives Data Center Demand

Increase in enterprise demand for new-age technology and continuous innovation in service delivery are driving the demand for data centers in India. Prajakta Karnik speaks to industry experts about the challenges and growth opportunities that lie ahead in the data center space.

Owing to the recent advances in technology, businesses are seeking more access to a plethora of data. Also, the rapid adoption of cloud-based business operations is encouraging companies to take up data management capacities to manage large volumes of data. Besides, the wider proliferation of user-friendly interfaces, introduction of smart devices such as smartphones, etc., and high-speed internet, are expected to drive the data center market in the future.

“A rapidly growing economy, a widening customer base, improving infrastructure, and increasing internet penetration have given an impetus to the data center industry in India. Additionally, with tech such as AI, IoT, Machine Learning, Big Data and cloud computing becoming more mainstream, DC developers are increasingly redesigning their offerings to to incorporate edge computing to process data as close to their end-users as possible,” opined Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India.

Over the last few years, India has emerged as the most capacity-hungry data center markets in the world. According to a recent report by Mordor Intelligence, the data center market in India is expected to grow at a CAGR of 8 % over the forecast period 2021 to 2026.

Growth Drivers

India is witnessing a significant transition from an emerging economy to a digital economy since the last few years. This digital shift is not only catalysing economic growth across all sectors and sub-sectors, but creating a connected ecosystem. As per statistics, the size of the digital economy in India is estimated to grow from USD 200 billion in 2017-18 to a staggering USD 1 trillion by 2025.

According to a report by ResearchAndMarkets.com, India's data center market is witnessing significant investment from colocation service providers due to high demand from BFSI, logistics, transportation, e-commerce, and government agencies, fuelled by the outbreak of the Covid-19 pandemic. Several global colocation & data center service providers have been shown a tremendous inclination toward the Indian data center market, which is likely to contribute to the market growth.

Government of India has also undertaken various initiatives to make India a Global Data Center hub & to promote investment in the sector. The Ministry of Electronics & Information Technology (MeitY) has announced the Data Center Policy 2020, which aims to create a favourable climate for investments in the Data Centre sector, both domestic investments and Foreign Direct Investments, and incentivizing the growth of a robust and sustainable sector.

“The Covid pandemic has only accelerated the process. Even individual businessmen have started using digital means to operate their business & profession seamlessly in today's time. Consumers have also switched from conventional media entertainment to over-the-top (OTT) platforms. The pandemic has alsoaltered the way educational institutes impart their courses,” said Surajit Chatterjee Managing Director - Data Centre Group, CapitaLand India.

He noted that the following two years will be a gamechanger, as we are expected to witness the transition from 4G to 5G technology. “Businesses will see increased usage of IoT, AI, the implementation of data protection & localisation policy will further pave the way for digitalisation. All these factorswill boost the volume of data produced and consumed in the country, which naturally results in a greater demand for the data centres that will act as a backbone that caters to this demand,” Chatterjee added.

According to ResearchAndMarkets.com, the key growth trends in the data center space are:

• 5G deployment enhances Edge Data Center investments.
• Procurement of renewable energy in Data Centers.
• Growing rack power density.
• Increased adoption of hyper converged & converged infrastructure platforms.

Challenges

While a lot of initiatives have been taken in order to give a boost to the sector by the private sector and the governments, data center space is faced with several challenges. Being a capital-intensive business, one of the most important challenge is to reduce cost while ensuring optimum utilisation of capacity, uninterrupted power supply and maintaining availability and uptime. Apart from this, finding skilled workforce, getting adequate investment to set up data centres especially for MSMEs and startups, and seamless integration also need to be addressed.

“Secure and reliable data center networking has become critical as the dependency as well as utilization of data centers increases. As companies now conduct hybrid models of business, secure network connections are imperative and the continuity requirement for networks will increase. In such a scenario, Vertiv has been supporting businesses with its diverse range of technologies and prefabricated solutions, which include racks, power, cooling, and management of critical IT. These customizable prefabricated systems can help increase energy savings by up to 28% and increase rack density up to 60% over tradition systems,” Santosh Kulkarni, Country Manager - Smart Solutions, Vertiv India said.

Echoing similar views, Vimal Kaw Head - Data Center Services, NTT India opined that one of the biggest challenges in implementing seamless integration is the access to the right technology and expertise.

“NTT has built an immense & wholly integrated ecosystem over the 20+ years of our operations, right from the early days of internet in India. Thus, the expertise and understanding of Indian market's strengths and weakness gives us the ability of seamlessly integrating various components and a single window-management of the infrastructure,” he added.

Besides, data centers are emerging as the highest consumers of power. Therefore, any increase from ideal temperatures may result in equipment malfunction and impact the effectiveness of online operations. On the other hand, a decrease from the ideal temperature can result in sub-optimal energy consumption.

Today, sustainable HVAC solutions are crucial to maintain temperature control and air quality, while reducing the negative effects on the environment, observed Ravichandran Purushothaman, President, Danfoss India.

“In an ideal world, data centers & their ancillary equipment such as HVAC systems should operate at a PUE of 1.0, which implies 100% efficiency. This would mean that all the power consumed would only be used on IT equipment and there is no waste heat produced from operations. In reality, the PUE was reported to be 1.58 in 2020 and only marginally better for the last 7 years. This implies that there is a lot of energy that is wasted as heat, which needs to be cooled for achieving the best performance.To meet the overall efficiency goals of the data centre ecosystem, increasing the efficiency of HVAC systems will play a key role,” he added.

Covid: A Game Changer

The pandemic has radically changed disrupted the technology space. Most businesses are turning online to ensure business continuity. Data generation has hit unprecedented levels due to massive rise in internet usage and broader deployment of IoT devices. According to research by CRISIL, data consumption has seen a 38% rise year-on-year in Q1FY21.

Similarly, with working from home is the new normal, there is a significant surge in cloud adoption. According to NASSCOM, cloud spending in India is estimated to grow at a CAGR of 30% to reach USD 7.1 billion in 2022.

The Covid-19 outbreak has been a major disruptor for data center industry, opined Syed Sajjadh Ali, Managing Director - Eaton – Electrical Sector India.

“Most businesses assume that natural disasters are specific, localized events that will have at worst, impacts on the regional level. What the coronavirus pandemic has demonstrated, however, is that some risks have the potential to be truly global. Data centers around the world have been forced to adjust their operational procedures on the fly to maintain consistent operational uptime while also meeting the demands of social distancing requirements. Remote monitoring technologies like DCIM and automated systems have helped businesses to deal with the crisis better.

Changing Preferences

Hybrid Data Centers

As data mobility, dynamic application usage and distributed IT frameworks demand greater agility, geographic reach and optimized performance, hybrid data centers are gaining traction. These facilities deploy virtualization, software-defined networking and cloud connectivity to help distribute enterprise workloads across a variety of physical and cloud-based environments.

Owing to these advantages, a hybrid facility allows businesses to allocate their workloads flexibly and suit individual needs. With digital diversification remaining strong, the hybrid data center is likely to continue gaining popularity.

Colocation Data Centers

Due to the increasingly complex enterprise requirements for many businesses, the choice between managing and maintaining an on-premises data center or outsourcing to a colocation provider is becoming more clear-cut. Additionally, since the cost of managing an in-house data center and IT infrastructure can be higher than the cost of renting space at a colocation center, large businesses are opting for the colocation model.

Moreover, colocation model also provides agility to scale quickly and easily, something that cannot be easily achieved with on-premises options since expanding private server rooms and data centers takes months of planning. According to statistics, global colocation market is expected to reach USD 62.3 billion by 2022 at a CAGR of 14.6 percent.

Way Forward

According to property consultant JLL, the Indian Data Center industry is expected to grow more than double to 1007 MW by 2023 from its existing capacity of 447 MW. Mumbai and Chennai are expected to drive 73% of the sector's total capacity addition during 2021-23, while other cities like Hyderabad and Delhi NCR will emerge as new hotspots.

The report states that India's data center industry is expected to add 560 MW during 2021-23 leading to a real estate requirement of 6 million sqft. The supply addition will be complemented by densification of racks and servers, sustainable energy sourcing and use of indigenous resources.

JLL noted that the rising demand has led data center operators and developers to pursue ambitious expansion plans, while some adopted the acquisition route to enter Indian markets, which is expected to continue. Colocation capacity grew by around 28 percent to reach 447 MW in 2020 from 350 MW in 2019.

As Chandnani sums up, “Over the next five years, the asset class will drive sustained investor demand basis the augmented shift from captive to co-location data centers, data protection laws, and application of new technologies like 5G, edge computing, artificial intelligence, and the IoT. In cities like Mumbai, Hyderabad, and Bengaluru, which are flourished with businesses in the IT and BFSI space, can be expected to further demand for hyper-scale data centers, leading to potential commercial real estate growth.”

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Objectives of Data Center Policy 2020

• Drive necessary regulatory, structural and procedural interventions for enabling ease of doing business in the sector, towards attracting investments and accelerating the existing pace of Data Centre growth in the country.
• Promote sector competitiveness through various fiscal and non-fiscal incentives. Promote domestic start-ups, MSMEs and other Indian IT companies and provide impetus to indigenous manufacturing of IT and non-IT equipment.
• Facilitate access to uninterrupted and cost-effective power, which forms one of the most critical aspects for operating the Data Centre.
• Measures to bring in necessary improvement in network backhaul, domestic as well as international.
• Meet the data security needs by promoting investments in trusted (safe and secure) Data Centres in India.
• Facilitate standardization in the development of Data Centres.
• Promote capacity building in the sector through association with various skilling / human resource development programs.

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Recent Announcements

• Web Werks signed a MoU with Tamil Nadu government to build a 20MW data centre here at an outlay of about Rs 700 crore.
• Mantra Data Centers plans to invest USD 1 billion to develop data centers in India.
• CapitaLand-owned Ascendas India Trust to invest USD 162 million to build a 90MW data center campus on a 6-acre plot in Navi Mumbai.
• NTT plans to spend USD 2 billion to add more than 1 million sqft of data center space and some 150MW of capacity.
• Microsoft plans to set up a data center in Telangana with a total investment of USD 2 billion.
• Yondr Group has partnered with Everstone Group to deploy USD 1 billion to develop data centers in India under brand name EverYondr.
• Brookfield Infrastructure and Digital Realty to set up an equal joint venture to develop data centres in India.
• Aitrtel through its subsidiary Nxtra Data eight data centers. plans to invest Rs 3500 crore over 3 years to expand data center.
• Adani Enterprises & EdgeConneX, which plan to develop 1 GW of data centre capacity over a decade, has bought land parcel in Noida to set up data center.

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