States charge up for a data centre boom as global majors bet big on India

In her 2020 Union Budget speech, Finance Minister Nirmala Sitharaman outlined a national data policy, citing the truism that data is the new oil. Some months before that, in 2019, Europe’s largest data centre hubs, Amsterdam and Singapore, which accounted for 60 per cent of Southeast Asia’s data centre supply, had announced a pause citing reasons from higher power intake to environmental sustainability.

On Tuesday, as Sitharaman delivers her fourth Budget speech with some expected an­n­ouncements on driving “Dig­ital India”, Singapore has lifted its moratorium with a condition on “sustainability” and India is slowly starting to fill the gaps created by that country in becoming a favourable destination for corporations setting up data centres. According to sources, US tech giant Micro­soft and the Telangana government have already finalised a deal to set up a Rs 15,000-crore data centre at Hyderabad. This announcement followed investments in the state by companies such as Flipkart and Amazon Web Ser­vices (AWS), a sign of global majors looking beyond Mum­bai, Chennai, Bengaluru and Pune for future data centre growth.

India’s data centre industry has around 499 megawatt (MW) of critical information technology capacity, of which seven cities account for 490 MW — Mumbai (225 MW), Chennai (62 MW), Bengaluru (61 MW), Pune (61 MW), Delhi NCR (42 MW), Hyderabad (33 MW) and Kolkata (6 MW).

According to a JLL res­e­a­rch report, the sector saw investment commitments to the tune of $3 billion in the first six months of the current financial year. Driven by rising cloud demand, digitisation and the impending 5G rollout, data centre capacities are expected to double to 1 GW by 2023. Mumbai and Chennai will drive 73 per cent of the sector’s capacity addition during 2022-23, while Hyderabad and Delhi NCR will emerge as new hotspots.

As far as the availability of undersea cables (submarine cables) embedded with fibre-optics in concerned, Mumbai has an advantage with as many as nine cable landing stations (CLS), followed by Chennai with four, and Ernakulam, Tuticorin and Trivandrum with one each. Five CLS are under construction at Mumbai, three at Chennai and one in Digha.

So states such as Karnataka and Telangana are lining up more sops to compensate for this lack — including easy land availability, electricity tax exemption and power at existing industrial tariffs and subsidies to companies that meet at least 30 per cent of their power consumption via renewable energy sources. “Given the limitations that Telangana has, it is coming up with very proactive policies and was one of the first states to come up with a data centre policy in 2016. The large pool of IT ecosystem in Hyderabad is also helping them,” said an IT industry official closely associated with the policy-level initiatives in Telangana, when asked about Microsoft’s fresh investments. The state is targeting $10 billion investments in the sector in the next five years. Based on the latest data available with industry body Nasscom, the country has around 80 third-party data centres and is expected to see investments of around $4.5 billion by 2025. Nasscom’s suggestions for the Centre’s policy included providing uninterrupted power, enabling consumption of renewable energy 24x7, creating a separate building code for data centres and measures aimed at reducing cable breaks.

In addition to new players, existing major players such as Japan’s NTT Ltd have announced $2 billion investments over the next four years. The company already has 10 centres in India. Similarly, Google has reportedly lined up a $10 billion investment plan in India, while AWS is also investing $1.6 billion into its Hyderabad unit. Private equity firms have also shown interest in the sector in 2021, with data centre operator Yondr Group and India-focused private equity firm Everstone tying up to invest $1 billion. Similarly, Digital Realty, one of the world’s largest players, and Brookfield Infrastructure Partners had also tied up last year for $2 billion data centre investments in India.

A major challenge that India is going to face is the availability of land in proximity to a power substation and fibre path, safe distance from residential plots, oil terminals and the availability of quality mass-rapid transport systems. An inevitable rise in land prices in such areas is also a cause for concern.

But sustainability remains a key concern. According to the International Energy Agency, data transmission networks consume 260-340 TWh (terawatt-hour) now, or 1.1 to 1.4 per cent of global electricity use. This rising rate of electricity consumption is a major concern that environmentalists highlight in a country like India where thermal power accounts for around 60 per cent of its requirement (the share of renewables is still around 26 per cent). Singapore had put the brakes on fresh investments when data centres started consuming 7 per cent of its power requirement and were on the road to touch 11 per cent by 2030.

So far, however, sustainability is not an issue that has exercised policy-makers at the Centre and the state level. With India set to double its internet users from the current 750 million and data consumption from 110 exabytes (a very large unit of computer data storage) by 2025, the sector is set to see aggressive investments from global majors in the coming years driven by central and state government policies that aim to make India the next global data centre hub.