Rapid digitalization by both the government and private sector is pushing up demand for data center space in the country

India is currently the world’s fastest-growing trillion-dollar economy and the fifth-largest overall, with a nominal gross domestic product (GDP) of US$2.94 trillion [1]. The Indian government has placed a lot of emphasis on building up the country’s digital prowess. As a result, there is a push to build the country’s internet infrastructure, particularly its data center capacity with multiple government-backed incentives for industry players.

Due to the government’s push as well as market forces, the Indian data center industry is expecting double-digit compound annual growth rate (CAGR) from 2019 to 2025. A report prepared by the BroadGroup has estimated that the country’s data center capacity will go up by 400 MW from 2018 to end 2020 [2].

It is expected that around US$10 billion will be invested in India data center market over the next six years, till 2025 [3].

Huge internet market
India has a lot going on for its digitalization efforts. The country already has the world’s second largest internet market, after China, with 687.6 million users as of January 2020
[4]. Out of these, 400 million are active on social media and it is no surprise that both WhatsApp [5] and Facebook [6] count India as their largest market.

The country’s average monthly mobile data usage per user is 11 gigabytes (GB) which is the highest per capita data consumption in the world, according to research by Nokia [7]. Millions of customers use mobile data to watch movies online and this has spurred investment by OTT (over the top) content providers such as Netflix and Amazon, and also a number of Indian streaming service providers. Mobile data prices in India are among the lowest in the world, at around 10 US cents per GB, the Nokia report notes.

Anticipating the growth potential of the Indian market, Amazon Web Services (AWS), earlier this year, announced that it will invest US$1.6 billion into the construction of two data centers in India [8]. The data centers are expected to be located on the outskirts of Hyderabad, the capital of the southern state of Telangana.

Google, which recently added New Delhi to its growing number of “cloud regions” in Asia Pacific, has announced it would continue to invest in its cloud infrastructure in India to help both the private as well as public sector companies to “achieve their goals” [9].

Earlier this year, Facebook invested US$5.7 billion for a minority stake in Jio Platforms, which is a subsidiary of Reliance Industries (RIL) which runs India’s biggest telecommunication company. The investment, which is the largest for a minority stake by a technology company anywhere in the world, is likely to create one of the world’s largest digital services firms [10]. Following the deal, both Google and Microsoft are also considering investment in Indian telecommunication companies [11]. Competition and investment among these top three technology firms is likely to result in a massive push in Indian e-commerce and digital services business with its concomitant requirement of increased data center capacity.

Digital India initiative
The Indian government, on its part, has been proactive in introducing a number of digital services under its Digital India
[12] initiative, launched in 2015. The initiative mandates that all government services would be made available online by improving the digital connectivity with better internet infrastructure. As a result, the government is increasingly reliant on IT-intensive services to improve its performance and has developed many government-to-citizen (G2C) delivery platforms, such as the National e-Governance Plan (NeGP), e-visa, and National CSR Data portal [13]. As the experience in countries like Singapore and South Korea has shown, digitalization of government services gives a big  boost to the data center industry.

As more Indians get accustomed to services such as online gaming, online education, streaming, e-commerce, online banking and others, data center operators are seeing a huge demand for data center space. The market is responding with operators building larger energy-efficient facilities using modular builds to serve hyperscalers and enterprise clients.

According to research by CBRE Group [14], major cities like Mumbai, Chennai, Bengaluru, Kolkata, Hyderabad, Pune and the National Capital Region (greater New Delhi) are likely to witness additional data center space supply of 40 per cent in 2020. Out of this, Mumbai currently leads with 41 per cent additional data center capacity, followed by Bangalore (17 per cent) and Delhi (16 per cent).

Government support
Favorable government support in the form of tax breaks is helping in the growth in the data center market in India. As an example, the state governments of Telangana, Gujarat, Andhra Pradesh, and Maharashtra are providing considerable incentives for data center development
[15] in the form of tax reliefs.

The IT & telecom industry – with investment from large global companies as well as Indian conglomerates – is expected to lead the data center market growth in India. Media & entertainment, retail (e-commerce), and manufacturing sectors are the next significant verticals that will require additional data center [16] space. Last year, India’s top online retailer, the Walmart-owned Flipcart opened its second data center in Hyderabad for US$28.6 million [17]. Snapdeal, India’s second-largest homegrown online retailer launched its own private cloud platform christened Snapdeal Cirrus with which the firm hopes save costs and get performance gains across its applications [18]. India’s e-commerce market is expected to grow from US$60 billion in 2020 to around US$200 billion by 2027 [19].

Thanks to millions of tech-savvy Indians coming online every year, the country has the third-largest start-up ecosystem in the world [20] as entrepreneurs seek to cash in on demand for online services. The number of tech startups reached 7,500 in 2018, a growth of 12-15 per cent from 2017. At least 27 Indian startups have gained unicorn status since 2014 with most of them crossing the US$1 billion in valuation within the last couple of years.

Indian unicorns, such as ride hailing app Ola, education app Byju, online insurance company Policy Bazar  and software-as-a-service (SaaS) company Freshwork, have attracted investment from around the world due to robust growth of the Indian market. Local tech startups in India raised US$14.5 billion in 2019, beating their previous best of US$10.6 billion last year, according to research firm Tracxn [21]. Services offered by these firms depend on data storage and analytics and this again translates to robust growth in internet infrastructure in the country. Byju, for example, uses AWS to host its data base [22].

Colocation services
An interesting aspect of the Indian market is the relatively low number of standalone colocation services as compared to managed colocation or managed hosting services. Several small enterprises in India prefer managed hosting or cloud services rather than colocation, according to an analysis of the data center market in India

The report notes that sectors such as BFSI (banking and financial services industry), logistics, and transportation, e-commerce, and government agencies are witnessing high demand for colocation services in India. As a result, global enterprises which are investing in the country are co-locating facilities. The increased investment from global colocation service providers is likely to influence the India data center market over the next few years.

The growth opportunities in India would be mostly technology-led with initiative like Digital India and the provision of online citizen-centric services. The country’s growth potential as well as the presence of a large technology savvy population, is attracting global hyperscale service providers. As a result, building out of internet infrastructure, particularly colocation data centers, presents a major growth opportunity in the world’s second-most populous nation with 1.3 billion people. PDG is well-poised to take advantage of this opportunity.

About PDG
Princeton Digital Group (PDG) is a Warburg Pincus-backed investor, developer and operator of internet infrastructure. Our portfolio of data centers powers the expansion of hyperscalers and enterprises in the world’s fastest-growing digital economies. Our agility, speed and unmatched experience in scaling global internet infrastructure provide our partners and customers immediate access to growth opportunities across Asia.

Vipin Shirsat

Author Vipin Shirsat

Managing Director, India at PDG

More posts by Vipin Shirsat