The Indian data centre industry has fast emerged as one of the most booming sectors, attracting considerable investment, buoyed by its rapid growth. Over the years, various factors have acted as driving agents for the growth of the data centre industry in India such as increasing internet penetration and government initiatives around data security. Further, as the data centre market continues to grow, new trends are emerging in the sector, which are playing a pivotal role in shaping its future course. The Covid-19 pandemic has added further to this growth. According to a report by Crisil, data consumption saw a sharp 38 per cent year-on-year increase in the first quarter of financial year 2021 on account of Covid-19.
A look at the demand drivers for the data centre market in India, the key trends in this space, the investment requirements and the future outlook…
There are several factors driving the rise in data centre adoption. Rapid digitalisation, widening digital customer base, improving technology infrastructure and increasing internet penetration have given a strong impetus to the Indian data centre space. The growing adoption of cutting-edge technologies such as big data analytics, internet of things (IoT), artificial intelligence (AI), automation and cloud computing across industries has further increased the demand for data storage and processing. Moreover, the rise in the number of smart devices, along with increasing data consumption, has been a key contributing factor.
According to Nokia Mobile Broadband India Traffic Index 2021, the overall data usage increased by 36 per cent in 2020 due to greater usage of smartphones and fixed wireless access. The increasing usage of e-commerce, edtech and digital transactions during 2020 placed the existing IT infrastructure of enterprises under pressure. As such, the demand for data centres increased multifold.
In fact, the Covid-19 pandemic, which facilitated the transition to a remote working model, has amplified the role of data centres to a whole new level. As per JLL’s estimates, India’s data centre capacity is expected to increase from 375 MW in the first half of 2020 to 1,078 MW in 2025. In terms of cities, Mumbai is expected to witness the highest capacity addition of around 360 MW, followed by Chennai with a capacity addition of 134 MW.
Further, the government is playing an active role in adding to the data centre growth in the country. The increased thrust being placed by the government on data localisation under the Personal Data Protection Bill has also added to the demand for data centres. Under the proposed rules, data generated in India must be stored within the country, protecting personal and financial data from foreign surveillance. This is expected to create a bank of opportunity for data centre players to set up shop in the country.
India is seeing a rapid uptake of colocation services among enterprises as the service offers a host of benefits for small and medium enterprises (SMEs). The multitenant feature of colocation data centres offers the scalability benefit and enables companies to share the cost of space and equipment effectively with other users. Further, it saves enterprises the effort of maintaining their own facilities. The average cost of downtime per minute can be very high in a developing country such as India, thus posing business continuity challenges. This can be particularly troublesome for SMEs as it can lead to potentially heavy economic loss for their business.
The uptime consistency, including power, network and cooling infrastructure, offered by purpose-built server colocation data centres with increased service level agreements seems like a lucrative proposition for enterprises. Owing to these benefits, colocation data centre services are seeing a rapid uptake among Indian enterprises. According to JLL, India’s colocation data centre industry witnessed an unprecedented absorption of 102 MW in 2020, notching higher absorption than most key markets of Europe and America.
Emergence of smart data centres
Data centres are witnessing a series of technology advancements. Emerging technologies such as AI, IoT, cloud computing and edge computing are transforming the operational capacity of data centres and making them more agile, secure and efficient. For instance, IoT enables a data centre to become more flexible by providing the automation it needs. With the help of algorithmically managed IoT devices, everyday tasks at the data centre, such as patching, monitoring, updating, scheduling and configuration, can all be managed remotely.
Similarly, with the help of AI, data centre operators can improve monitoring of operations. AI complements security incidents and event management systems, as it can analyse incidents and inputs from multiple systems. It then devises an appropriate incident response system.
The onset of the Covid-19 pandemic deeply impacted the data centre industry as most organisations shifted to the digital mode of working, resulting in a surge in demand for data centre services. Immediately after India went into lockdown due to Covid-19, there was a 25-35 per cent increase in data centre capacity usage, as companies began to upgrade their digital infrastructure to cope with the new work culture.
As per IDC’s predictions released for the IT industry for 2021 and beyond, published in a new FutureScape report, the Covid-19 disruptions of 2020 have imparted many lessons to organisations on the importance of having business continuity mechanisms. Consequently, by end 2021, 80 per cent of companies are slated to put in place a system for shifting to cloud-centric applications and infrastructure at twice their pre-pandemic speed.
Of late, cloud computing has emerged as one of the most cost-effective technologies for data centres. This is because cloud computing has eased the pressure off traditional data centres by providing virtual infrastructure for off-premises computing. Compared to traditional data centres, cloud data centres offer increased performance and efficiency. According to industry reports, in 2019, the annual expenditure of enterprises on cloud infrastructure services was more than they had spent on data centre hardware. In addition, over half of the total servers sold were deployed at cloud providers’ data centres.
Key growth avenues for both telcos and towercos are edge data centres, which are slowly gaining traction, owing to the proliferation of several low latency and high throughput applications that require edge computing technology. These edge data centres are small, regional, cost effective, automated, micro-modular data sites that can power high speed computing.
According to an IDC report, the changed operations and workforce practices induced by the pandemic will predominantly drive 80 per cent of edge-linked investments in most sectors.
Green data centres
The surge in data demand has put significant pressure on modern-day data centres to deliver higher capacities. As a result, data centres are guzzling massive amounts of energy. Power is, in fact, one of the key components of a data centre. Since power requirement of data centres is expected to increase many fold in the near future, the industry has started taking initiatives to make data centres energy efficient and environment friendly. This has led to the emergence of the concept of green data centres. A green data centre deploys environment-friendly solutions within its infrastructure. It stores, manages and disseminates data just like any other data centre, but ensures a lower carbon footprint.
According to Anarock’s analysis, India has attracted around $977 million worth of investments in the data centre industry since 2008. This has been a combination of private equity and strategic investments. Interestingly, of this total amount, $396 million alone came in 2020 (until September 2020).
One of the key factors that have induced this investment growth in the Indian data centre space is the change in perception by large infrastructure investors who have now started viewing it as a potential alternative real estate income-yielding asset. As such, several global operators and investors have started committing capital to this sector.
Market outlook and opportunities
Given the massive surge in data consumption that is taking place, the Indian data centre industry is only expected to grow by leaps and bounds. According to Crisil, the Indian data centre industry is expected to record a rapid 25-30 per cent compound annual growth rate to reach $4.5 billion-$5 billion by fiscal year 2025.
Further, as per a recent JLL report, the data centre space is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW.
Geographically speaking, Mumbai and Chennai are expected to constitute 73 per cent of the sector’s total capacity addition during 2021-23, while other cities such as Hyderabad and Delhi NCR are emerging as new hotspots.
The study also noted that in terms of investment requirement, India’s data centre sector will need about $3.7 billion over the next three years, in order to fulfil the 6 million square foot greenfield development opportunity for the industry.
Given the plethora of opportunities in the data centre space, operators and infrastructure investors are increasingly pursuing expansion plans in India. To this end, a number of players are adopting the acquisition route to enter the Indian market. Various policies and reforms brought in by the government with the aim of catapulting India into a global data hub have also provided the necessary impetus to investment growth in the Indian data centre space.