India’s data centre capacity is projected to more than double to 2-2.3 GW by fiscal 2027, according to a recent CRISIL Ratings report. The growth will be powered by increased digitalisation, rising cloud adoption by enterprises, and surging consumer data demand. Additionally, the rapid advancement of Generative Artificial Intelligence (GenAI) is expected to drive significant demand for data centres in the medium term.
Growing Demand for Data Infrastructure
The demand for an increase data centre capacity is being driven by two major factors. First, enterprises are moving to digital platforms, increasing their reliance on cloud computing. Second, the rise in high-speed data accessibility has fueled a surge in internet usage, including social media, OTT platforms, and digital payments.
According to CRISIL, mobile data traffic in India grew at a CAGR of 25% over the past five fiscals and reached 24 GB per user per month by the end of FY24. This figure is expected to rise to 33-35 GB per month by FY26.
Furthermore, the growing adoption of GenAI technologies is expected to create an even larger demand for computational power and low-latency infrastructure, which traditional cloud computing functions cannot fully address.
Investment and Capital Expenditure Outlook
To meet this rising demand, the data centre sector will require investments ranging from ₹55,000 crore to ₹65,000 crore over the next three years. This investment will primarily cover:
- Land and building infrastructure
- Power equipment
- Cooling solutions
Manish Gupta, Senior Director and Deputy Chief Ratings Officer at CRISIL Ratings, highlighted that infrastructure—land and building—accounts for 25-30% of overall capital expenditure. Operators often build infrastructure in anticipation of future tie-ups, exposing them to potential utilisation risks. However, CRISIL expects strong demand to ensure 80-90% capacity utilisation within a year or two after commissioning.
The Role of Hyperscalers in Pricing and Capacity Utilisation
The report also underlines the significant role of hyperscalers in shaping the data centre market. Hyperscalers, due to their large-scale capacity requirements, hold strong bargaining power and typically secure contracts at 10-20% lower pricing than smaller clients.
While these pricing dynamics could pose challenges, balancing capacity ramp-up with pricing stability will be critical to ensuring sustainable returns on investments.
Stable Cash Flows and Credit Profiles
Anand Kulkarni, Director at CRISIL Ratings, noted that once capacities are tied up, data centres benefit from predictable cash flows and a stable client base. High switching costs for customers—caused by significant upfront investments and potential disruptions—result in low churn rates for data centre operators.
CRISIL expects the debt-to-EBITDA ratio of data centre operators to rise to approximately 5.4x in FY25 from 5x in FY24. However, this ratio is expected to improve starting FY26 as capacity utilisation ramps up and cash flows stabilize.
Future Growth and Key Challenges
The data centre sector is on a solid growth trajectory, but success will depend on a few critical factors:
- Timely commissioning of capacity expansions
- Securing customer tie-ups
- Maintaining pricing sustainability despite cost pressures
CRISIL concluded that debt levels may see moderate increases in the short term. However, the industry’s stable cash flows and strong demand outlook will ensure a steady credit profile for market players.
Conclusion
The Indian data centre sector is entering a phase of rapid expansion driven by digital transformation, AI adoption, and increasing enterprise cloud investments. With significant capital investment and efficient management of capacity and pricing, the sector is poised to play a pivotal role in supporting India’s digital economy over the next three years.
The focus on sustainability, operational efficiency, and client partnerships will be key in navigating the challenges of this fast-growing industry.
