The Indian data centre (DC) sector is poised for significant growth, with operational capacity expected to rise to 2,000-2,100 MW by March 2027. This expansion is attributed to increased internet usage and supportive data localisation policies. Key highlights include:
- Investment projected between Rs 40,000-45,000 crore in FY2026-FY2027
- Development pipeline of 3.0-3.5 GW over the next 7-10 years
Growth Driven by AI and Cloud Technologies
The growth of India’s data centre industry is increasingly driven by advancements in artificial intelligence (AI), cloud computing, and emerging technologies such as the Internet of Things (IoT). Anupama Reddy, Vice President and Co-Group Head of Corporate Ratings at ICRA, stated, “While cloud, 5G roll-out, machine learning, and IoT are expected to generate enormous data and storage requirements, generative AI-led high computing requirements present a new wave of demand for DC capacity.” Reddy emphasized that this surge in demand presents significant opportunities for data centre operators.
Globally, the data centre market has already witnessed multiple large deals exceeding 300 MW, primarily driven by hyperscalers. India is anticipated to follow suit, benefiting from favourable regulatory policies and infrastructure support for the data centre sector. The government’s initiatives to enhance AI education and broadband connectivity through projects like BharatNet are expected to further bolster growth in this industry.
Key Locations for Data Centre Development
Location plays a critical role in the success of data centres. Operators prioritize areas with landing stations, robust fibre connectivity, and reliable power supply. Mumbai and Chennai emerge as the leading locations, with Mumbai being the preferred choice. According to ICRA, around 75% of upcoming data centre capacities in the next three years will be concentrated in these two cities, alongside Hyderabad.
As the number of data centre developers in India has surged from five in 2019 to 18 by 2025, competition has intensified. Co-location services, largely supported by hyperscalers, account for 80-85% of revenues for major developers. However, this increase in competition has led to a moderation in rental prices, shifting negotiation power towards hyperscalers, according to Reddy. “As a result, ICRA expects an increase in the payback period and an impact on return metrics for most developers in the medium term,” she noted.
Future Outlook for India’s Data Centre Sector
The future of India’s data centre sector appears promising, with ICRA estimating that revenues for the top five players, which account for 75-80% of overall industry revenues, will grow by 18-20% year-on-year in FY2026. This growth is expected to stem from increased rack capacity utilization and the ramp-up of new data centres. Operating margins are projected to remain healthy at 40-41%, although the return on capital employed will likely be modest due to continuous capital expenditure.
Despite the challenges posed by increased competition and constrained pricing flexibility, ICRA expects the leverage and coverage metrics of data centre players to remain comfortable in the medium term. As Anupama Reddy concludes, “With strategic investments and a focus on technological advancements, India’s data centre market is well-positioned for sustained growth in the coming decades.”
