India’s Data Centre Capacity May Hit 2.4 GW by FY28: India Ratings

India Ratings and Research (Ind-Ra) anticipates the data centre (DC) capacity addition to accelerate to 300-350MW per year over FY26-FY28 (FY22-FY25: 150-250MW per year) to reach a total DC capacity of 2.4GW (FY25: 1.3GW). Demand for DC capacities is expected to keep pace with supply additions, providing stable to moderate growth in occupancies and rental rates. Ind-Ra estimates the total capital cost for DC at INR500 million to 700 million per IT MW, which has seen a capex inflation of 5%-10% CAGR over FY21-FY25. However, the inflation was effectively managed by contingency planning and long execution timelines for DC (three to four years) projects.

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“As per our project-wise analysis, DC players have announced a fresh capacity addition of a massive 7.1GW. However, almost 60% is still at a nascent stage. With 1.3GW of capacities under the execution stage and an additional 1.6GW under-planning stage, we are estimating a total investment pipeline of INR1.6 trillion-2.0 trillion over the next five to seven years. Adoption of artificial intelligence (AI) workloads would lead to transformational changes in demand contours and capital expenditure for DC projects, which remains a key monitorable,” says Prashant Tarwadi, Director, Large Corporates, Ind-Ra. 

Demand to Grow in Line with DC Supply Addition:

Ind-Ra expects DC supply growth of 20% will be met with equivalent growth in demand, supported by (a) rising data usage by retail customers and (b) strong demand contours for B2B usage (public cloud and government’s digitalization initiatives). AI workload is likely to bring in changes to demand contours. For instance, large US-based DC real estate investment trusts (REITs) have already committed large investment plans to develop AI-ready DCs.  

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Counterparty Risks: 

Cloud Service Providers (CSPs) have contributed to DC Growth, as per the research findings. The research showed that in the US, CSPs have leased substantial capacity in large DC REITs. CSPs as tenants generally have a better counterparty credit profile (for DCs) than other enterprise users, given (a) generally favourable leasing terms, (b) strong credit ratings, (c) large scale and size. The contractual structure for a DC is not as binding as that of other asset classes; however, the risk is mitigated by a low churn rate and high cost to switch.  

Technology Obsolescence Risk: Yet to Pan Out in Indian Market, but is Concerning:

For pure-play colocation DC operators, the risk is minimal as key components (building, power infra, HVAC) have a life cycle of 10-30 years. The only component with the shortest life cycle is UPS batteries (five to eight years), which generally get replaced in a span of four to five years due to efficiency reasons. However, the technological obsolescence risk is material for DC projects with cloud operations, which necessitates the installation of servers. Nevertheless, in India, the risk has not yet fully materialized as such refurbishment maintenance capex is restricted to 1%-2% of sales for pure-play colocation DC and 5%-6% for cloud/ managed services-focused DC and is accommodated under routine repairs and maintenance.