Data Centres - COE Chakra

Data Centers Sectoral Insights

India’s data center industry is undergoing a structural shift, propelled by growing digital adoption, regulatory clarity, and the accelerating demand for compute linked to artificial intelligence. As of 2025, installed co-location capacity stands at approximately 1.5 GW. This figure is expected to rise to over 6.5 GW by 2030, underpinned by sustained hyperscaler investments and continued demand from regulated enterprise segments. Capacity growth is geographically concentrated in Mumbai, Noida, Hyderabad and Chennai, supported by access to stable power, submarine cable landing points, and active state-level incentive frameworks.

Policy changes have created a favourable regulatory environment that is steering demand toward domestic, compliant infrastructure. The enforcement of the Digital Personal Data Protection Act (DPDA) and prior RBI directives on data localization have prompted enterprises to reassess infrastructure strategies. AI workloads are further intensifying demand for advanced computing environments, prompting a reconfiguration of data centre design. Rack density, power throughput, and thermal efficiency have become core performance benchmarks. Government-led initiatives, including the IndiaAI Mission, are accelerating investment in GPU clusters and hybrid compute platforms, reinforcing the urgency for scalable, AI-ready infrastructure. In parallel, the GOI has introduced a suite of policy measures to position the country as a global hub for data centres and digital infrastructure. The Union Budget 2026–27 reinforces this direction, notably through a proposed tax holiday for cloud and AI-driven services until 2047, aimed at providing long-term fiscal visibility and supporting a sustained, investment-conducive ecosystem.

These shifts are redefining the occupier landscape. Hyperscale cloud providers are leveraging a mix of leased and built capacity to optimize cost and control, with leasing used for rapid market entry and builds favoured for long-term economics. BFSI and ITeS enterprises are moving from legacy captive infrastructure to colocation formats, driven by regulatory compliance needs and cost rationalization. Meanwhile, digital-native firms are increasingly favouring hybrid cloud solutions that balance performance with capital efficiency. In response, operators such as STT GDC, NTT, Nxtra, Yotta, and CtrlS are scaling aggressively and differentiating through value-added services, renewable power integration, and AI-supportive data centre stacks. Emerging entrants in India include players such as AdaniConneX, Digital Connexion, Equinix, Sify,CapitalLand, RMZ Colt, L&T Vyoma and Reliance Jio.

Technology transitions are influencing both hardware and facility formats. Traditional tower-based servers are being replaced by rack-scale and multi-node architectures to accommodate dense computing loads. SSDs are becoming the dominant storage medium in enterprise deployments, supporting faster I/O and energy optimization. Legacy air cooling solutions are approaching their physical limits, particularly beyond 15 kW per rack, leading to early-stage adoption of direct-to-chip and immersion cooling. The sector also continues to face structural power challenges, with operators deploying battery storage, on-site generation, and redundancy systems. However, dependence on grid stability remains a constraint in Tier 1 cities.

As demand grows, the development model is becoming more capital intensive, requiring structured financing strategies aligned with global precedents. Best-in-class capital frameworks include debt service coverage thresholds, margin ratchets linked to energy efficiency metrics, and escrow-based cash flow management. Syndicated structures increasingly rely on fixed-price EPC contracts and anchor tenant commitments for a significant share of initial capacity.

India now ranks among the most compelling global markets for digital infrastructure deployment. A confluence of strong demand, policy stability, and rising institutional interest is shaping a deep pipeline of investible assets. For financial institutions, the opportunity lies in adopting an infrastructure-grade underwriting approach that emphasizes long-term cash flow stability, ESG alignment, and contractual safeguards. This requires disciplined avoidance of speculative builds with unclear demand. Priority should be placed on operator-led greenfield developments with clear tenant visibility, low energy intensity, and reliable grid access.

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• Sectoral Insights Data Centres April 26  (1886 KB)