A surge in AI technologies, increased data consumption, accelerated cloud adoption and an emerging 5G presence are expected to manifest in heightened demand for data centers across India.

In October, chipmaker Nvidia [NASDAQ: NVDA] announced a partnership with Indian conglomerates Reliance Industries [NSE:RELIANCE] and Tata Group as the trio look to strengthen their involvement in the country’s AI technology sector, which Nvidia CEO Jensen Huang describes as “one of the largest AI markets in the world.”

But in order for India to keep pace with rapid advancements in AI, and position itself as a key player on the world stage, it requires improved back-end infrastructure such as data centres to be housed within its geography, say industry experts polled by this news service.

Moreover, Indian data localization laws, particularly in sectors such as broking, banking, insurance and telecommunications, require servers to be based in the country, says a partner at a major law firm, who requested anonymity citing sensitivities around data localization, also known as data sovereignty.

Using data centers in other geographies carries risk, with potential delays in transmission hampering transactions in businesses such as banking, e-commerce, telecommunications, gaming and social media, explains the partner, underscoring the need for greater inland storage capacity.

Numbers game

A report in May by Avendus put India’s installed data center capacity at 800MW as of 2022. This is estimated to reach 1,700MW by 2025, attracting investment of around USD 5bn.

The country is currently ranked as the 13th largest market for data centers globally based on the number of facilities. Yet its total of 138 is a fraction of the 2,701 centers in the US, which leads the world, per a report last month by research firm Brightlio.

In the Asia-Pacific region, several countries have more data centres than India: China houses around 443, Australia has 287, and Japan 207. A report in August by Cushman and Wakefield places Singapore as the largest market in APAC outside of mainland China, with operating capacity of 917MW, and a planned 209MW to come.

To encourage investment in the industry, Indian state governments such as those in Maharashtra, Karnataka, Uttar Pradesh, Odisha and Tamil Nadu have announced tax incentives, bolstering the sector’s appeal, says the partner at the legal firm.

Store wars

Investment in data centers “is not for the faint-hearted,” cautions Pratip Mazumdar, partner at Inflexor Ventures, an India-based deep-tech investment firm. “It’s a game for players with deep pockets that can own the asset, scale and sell it, if needs be.”

It’s a view shared by the legal partner: “Big players like Brookfield, Carlyle, Warburg Pincus, ADIA, Japanese investors and home-grown private-equity firms like Kedaara will be keenly eyeing such deals.”

Meanwhile, hyperscale providers such as Amazon Web Services (AWS), Google Cloud, and Microsoft, who already have data centers in India, are building more. Google Cloud currently has data centers in Maharashtra and Delhi, with plans to acquire more, according to a report from research firm STL Tech in February this year.

Traditional businesses like Kolkata-based engineering procurement and construction (EPC) firm Techno Electric and Engineering [NSE:TECHNOE] are also exploring data centers as their next growth engine, as reported by this news service.

Web Werks Iron Mountain Data Centers – a Mumbai-headquartered joint venture between Indian data center provider Web Werks and Boston-based Iron Mountain Data Centers [NYSE:IRM] – plans to invest around USD 170m in a new data center in Navi Mumbai, reports Mergermarket, citing comments from CFO Durgesh Pandey.

As AI takes off and technology moves forward, India’s data sector looks set to be more than just a numbers game.