India is on the cusp of witnessing a data centre boom. In the wake of increased use of cloud services, app-based services, high dependence on OTT platforms, the market size of data centres in India by investment, is expected to register a CAGR of 12% during 2020-2026 (as per Arizton Advisory & Intelligence). Moreover, the impending rollout of 5G will entail high reliability, low latency apps, which will again lead to a growth in the demand for data centres. Of course, this is just the tip of the iceberg.
The largest contributor to this growth spurt is COVID-19. Since a vast majority of businesses are now operating remotely, there has been a steep rise in data consumption in the nation. A CRISIL report suggests a year-on-year increase by 38% from FY 2020 to FY 2021. These facts are further supported by industry estimates that envisage India witnessing the construction of at least 28 hyperscale data centres spread across 16 million sq. ft. in the coming three years.
Data Centre and the Construction Market
Presently, the size of data center market in India is pegged at around USD 7 billion (2020 estimates by Gartner, IDC and Cyber Media Research). This, when compared with other western countries appears to be relatively marginal and accounts for just 3.5% share of the global market size – denoting India’s nascent position on the world map.
However, given the increasing significance of the sector in the recent period, data centres hold vast potential as an alternative real estate asset, especially when it comes to large infrastructure investors who are looking at long-term yield income. In addition to investors, these data centres have also proven to be attractive to both operators as well as developers. While companies such as ST Telemedia Group and NTT Japan already have their data centres in India, other global players such as Colt, Princeton Digital Group and Ascendas Capital have plans to enter the Indian market as well. Several large real estate developers in India have also implied plans of developing data centre projects. The Hiranandani Group, with its data centre arm Yotta Infrastructure, forayed into the business in 2019, while Adani Enterprises, along with global data centre operator EdgeConneX, has announced plans of developing several such projects across the country.
The development of these data centres would significantly help augment employment generation in the country, particularly for skilled workers and engineers. Not only would it generate jobs directly in construction and operations, but there are also marked employment prospects in supply chain and consumer communities as well. As per the Data Centre Draft Policy by the Ministry of Electronics and Information Technology, Government of India (MeiTY), a minimum of four Data Centre Economic Zones (DCEZ) across India have been proposed. Under this central sector scheme, these zones will offer an ecosystem for hyper-scale data centres, cloud service providers, IT companies, R&D units and other allied industries to function in tandem with one another. These zones will offer highly favourable infrastructure, both IT and non-IT, complete with equally conducive connectivity, power, and regulatory environment. With research estimates portending the creation of 5 ancillary jobs in the economy for every data centre employee, the construction industry stands to gain substantially from the development of these data centre zones. With more developers entering this arena, it will also provide impetus to a large presence of construction contractors and sub-contractors, especially with respect to installation and commissioning services, including Engineering and Building Designs, Core and Shell Development, Physical Security, Data Centre Infrastructure Management (DCIM), and Building Management System (BMS) amongst other aspects.
Expectations from the Data Centre Policy
The data centre industry is poised at a growth curve and with the government intensifying law and policy regarding data handling, the requirements of the billion-people market are going to increase exponentially. While the aspects of the draft policy are well intended, they are not nearly enough. The need of the hour is to offer a much more detailed outlook, and more importantly to formally implement the new policy amendments across the various state departments at the earliest possible. Only then will the up-and-coming data centre companies and the construction industry stakeholders be able to truly reap the benefits of the policy. Furthermore, the central and the state governments need to introduce specific laws pertaining to the protection and licensing of these data centres.
Summing up, the data centre industry in India, today, holds the potential to emerge as one of the fastest-growing markets in the world. The impending surge in the demand for data centres, combined with the increasing interest of major construction players in this rising sector is sure to bring some noteworthy developments in India. It is now up to the MeiTY to ensure that the requisite laws are in place, and are implemented across the nation, much to the benefit of all involved.