Rating firm ICRA has forecast that India’s data centre operational capacity will go up to 2,000-2,100 MW by March 2027 from around 1,150 MW as of December 2024. This would require an investment in the range of Rs 40,000-45,000 crore in the next two years.
It attributed the growth to Internet and data usage and data localisation initiatives in the country. “Over and above this, established data centre players and new players, who have entered this sector in the last 3-4 years, have a development pipeline of 3.0-3.5 GW to be delivered in the next 7-10 years, involving significant investments of Rs 2.0-2.3 lakh crore,” Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said.
“While cloud, 5G roll-out, machine learning and internet of things (IoT) are expected to generate enormous data and storage requirements, generative artificial intelligence (AI)-led high computing requirements present a new wave of demand for data centre capacity,” she said.
Driven by AI requirements, the global DC market has already witnessed multiple large deals (over 300 MW) signed by hyperscalers and India is expected to follow the trend. This, coupled with favourable regulatory policies and an infrastructure status for the data centre sector would support strong growth prospects in India in the coming decade.”
Talking on how the ongoing ‘data tsunami’ is triggering a sharp surge in data centre capital expenditure, she said the presence of landing stations, fibre connectivity, uninterrupted power supply, proximity to tenant’s headquarters and high score on disaster proofing are some of the key parameters a data centre operator would look for in a location.
“Mumbai and Chennai have maximum landing stations, with the former being the preferred location for a data centre operator. Around 75 per cent of the upcoming capacities in the next three years are concentrated in Mumbai, Chennai and the Hyderabad markets,” she said.
“Co-location services, backed by hyperscalers, contribute to the majority (80-85 per cent) of the data centre revenues for major developers,” she said.
However, with the increase in the number of data centre developers in India (from 5 in 2019 to 18 in 2025), servicing the same set of hyperscalers has led to moderation in rentals in recent years, as negotiation power has tilted more towards them. As a result, ICRA expects an increase in the payback period and an impact on return metrics for the majority of developers in the medium term.
ICRA estimates the revenues for top-5 data centre players (which account for around 75-80 per cent of overall industry revenues and operational capacities in India) to expand by a sharp 18-20 per cent year-on-year in 2025-26, supported by an increase in rack capacity utilisation and the ramp-up of new data centres.
The operating margins are expected to remain healthy in the range of 40-41 per cent in FY2026. The return on capital employed is likely to be modest as the data centre players are in continuous capex mode, and new facilities will ramp up over a period of time.
As competition is heating up with the entry of new players, pricing flexibility is getting increasingly constrained, which will drag the incremental business’s profitability and return metrics.
