Demand for data centres goes viral

The data centre business has received strong tailwinds over the past six month or so from an unlikely source – the Covid-19 pandemic. Even as the pandemic and associated restrictions threw life and business out of gear, stalling growth in most sectors, it became a massive catalyst for digital adoption.

To be sure, the government had already begun to push India towards becoming a digital economy with its Smart Cities and Digital India initiatives before the pandemic struck. However, the crisis accelerated the transition to the digital medium as almost all aspects of daily life – be it banking, education, or shopping – switched to the digital medium almost instantaneously, leading to a boom in India’s digital ecosystem.

The upshot has been an exponential growth in data generation, and this has created unparalleled demand for data centres in India.

Growing data volume, need for local storage
The Indian data centre industry, which accounts for 1-2% of the global pie, is estimated to have clocked a modest compound annual growth rate (CAGR) of 15-20% since fiscal 2016 to touch ~$1billion in fiscal 2019 and ~$1.2 billion in fiscal 2020. This growth rode on a sharp increase in internet penetration from ~30% in fiscal 2016 to ~55% in fiscal 2019. Also, on account of COVID, data consumption has seen sharp 38% rise on-year in Q1FY21. On the back of this, we expect the industry to log a rapid 25-30% CAGR to $4.5-5 billion by fiscal 2025. The growth drivers include an exponential surge in data being generated and a growing need for local data storage in line with the government’s thrust on data localisation. Industry capacity, which stood at ~360MW in fiscal 2020, is expected to expand more than threefold to reach 1,100-1,200 MW by fiscal 2025 on the back of $4-5 billion investments announced over the past three years for both brownfield and greenfield expansion of projects.