Growing beyond traditional hubs

As the demand for data localisation rises and India’s digital user base grows in volume, datacentre firms are eyeing cities beyond the metro hubs

Datacentres are not new to India — since the rarity of the 2008 datacentre set up by the Centre’s National Datacentre, the industry has seen steady growth. Nothing, however, set the market up for the meteoric growth that it has seen like Reliance Jio, whose democratisation of the Internet in India has led to massive proliferation of mobile data connectivity nearly everywhere in India. Of late, datacentres are reaching an inflection point, which is leading to their rising proliferation beyond the established hubs. This, in turn, is pushing datacentre operators to look more significantly at Tier-II markets, which could soon see a real estate and employment boom driven by a rise in such datacentres around the country.

Before we proceed further, it is important to understand why this growth is happening. Datacentre capacity has been on a steady increase not just in India, but around the world. Real estate research firm Cushman & Wakefield’s 2023 datacentre research report pegs the global online datacentre capacity at 7.4GW, while planned and sanctioned capacity is significantly higher than this.

“Tier II and Tier III cities, offer a strategic advantage for expanding datacentre infrastructure while optimising operational expenses.”- Rohan Sheth, Head – Datacentre & Colocation Services, Yotta Infrastructure

India, interestingly enough, plays a key role in this. For instance, a report by market researcher Savills India from 30 January this year said that the total data capacity, including online and sanctioned, is likely to cross 1GW this year itself.

Why this increase, though? The answer lies in the country’s social fabric.

“People essential to day-to-day datacentre operations are fast becoming a scarce resource, as technologies powering these facilities evolve at a rapid pace.”- Manoj Paul, Managing Director, Equinix India

With a clear drop in the overall price of data, India today has a massive Internet user base. Data from the Telecom Regulatory Authority of India (TRAI) for June, released on 24 August, pegged India to have over 86 crore Internet users, including fixed broadband lines and mobile internet subscribers. This means that over 60% of India’s total population is on the Internet today.

This increase has led to the proliferation of data-driven services, further exacerbated by the COVID-19 pandemic. From video conferencing, instant messaging and social media through platforms such as WhatsApp and Instagram, the rise of over-the-top entertainment services such as Netflix and Spotify for music and videos, instant payments through the record-setting UPI framework, and so on, we are today a massive data-using nation.

WITH GREAT DEMAND, COMES GREAT EXPANSION PLANS

To offer these services, companies today are in a race to increase the speed of connectivity and bolster the smoothness of the Internet experience. This is done through what is known as edge computing, the act of bringing the data processing hub closer to where a user is. This, in turn, spells a boon for datacentre operators. As Rohan Sheth, head of datacentre and colocation services at Mumbai-based Hiranandani Group’s Yotta Infrastructure says, “Edge computing serves as a powerful solution for executing operations that demand extremely low latencies and flexible programming runtimes. By processing data closer to the data source, edge computing minimises the delays in data transmission, making it ideal for applications that require real-time responses.”

To facilitate this edge computing, comes the need for edge datacentres, too. Manoj Paul, managing director of datacentre operator Equinix India, lists nine points that are facilitated in this regard by edge datacentres — lower latency, faster response times, bandwidth optimisation, improved scalability, enhanced security and privacy, local data compliance, support for real-time analytics, resilience and redundancy, and content delivery.

“Datacenter infrastructure demands heightened focus on sustainability and energy security, especially with the rise of AI and development of hyperscale parks.”- Sanjay Bhutani, Chief Business Officer, AdaniConneX

All of this is crucial for any datacentre operator to provide, to attract greater business demand for their server racks. Paul says that Equinix has set a rather lofty target here: “Soon, Equinix would have datacentres in India which would be within 10-30 msec from any major city.”

Amit Agrawal, chief business officer at fellow datacentre operator Web Werks, adds more nuance to this discussion. “Digital will soon become a lifestyle choice, thanks to the burgeoning Indian millennial population. Due to high bandwidth and transmission demands, datacentres will need to be ready to deal with changing latency and workloads. Latency becomes a significant factor as the majority of businesses are migrating their critical data to the cloud. Datacentres need to incorporate hybrid computing architectures,” he says.

Case in point: In November last year, Yotta announced north India’s first hyperscale datacentre with a net capacity of 160 MW. This massive facility was set up in the National Capital Region (NCR)’s Greater Noida suburb and is expected to serve the bustling circle of regions around Delhi. Yotta’s Sheth further affirmed expansion plans of edge datacentres in Tier-II and Tier-III cities like Bhubaneshwar, Chandigarh, Coimbatore, Guwahati, Indore, Jaipur, Lucknow, and Nagpur.

In a similar act of looking inward, Web Werks confirmed that it is also looking at inward markets. The company is set to open a 32 MW datacentre in the city of Rabale, a Tier-III market, by the end of 2025.

AdaniConneX, an Adani Group datacentre operation, also confirmed that its expansion plans include setting up datacentres in cities such as Visakhapatnam and Pune, as it builds towards a net datacentre capacity of 1 GW before the end of 2030.

Why look inward, though?

But, is it only latency that is driving the demand for edge datacentres? While it is undeniably an important factor, one big reason that plays a key role is real estate expenditure. In April this year, real estate firm JLL India projected that real estate demand from the datacentre sector is going to rise to a mammoth 9.1 million square feet.

But, with such rising demand juxtaposed with rising real estate demand from consumers as well, the cost of procurement of such vast amounts of land is also bound to increase. Markets in Tier-II cities and beyond therefore serve a multi-fold purpose, that of bringing the data closer to the users, bolstering the scalability of tech services, and reducing the cost of acquisition of the scale and size of land required as well.

As Yotta’s Sheth says, “Setting up a datacentre involves significant expenditure, with a substantial portion dedicated to real estate acquisition and development, reflecting the crucial role of physical infrastructure in housing and operating datacentre facilities. As land costs remain comparatively lower across Tier II and Tier III cities, these regions offer a strategic advantage for expanding datacentre infrastructure while optimising operational expenses.”

“Due to high bandwidth and transmission demands, datacentres will need to be ready to deal with changing latency and workloads.”- Amit Agrawal, Chief Business Officer, Web Werks-Iron Mountain

Explaining the nuance behind availing this cost benefit, Equinix’s Paul says, “Availability of suitable land and cost of land does play a role in the selection of a site for a datacentre. But, since the cost of land is one of the elements of total capex spend, other factors like demand for colocation in that city, availability of reliable power and telecom network infrastructure are other key parameters which play a role in site selection.”

Agrees, Sanjay Bhutani, Chief Business Officer, AdaniConneX: “Beyond just real estate, datacenter infrastructure demands heightened focus on sustainability and energy security, especially with the rise of AI and development of hyperscale parks across the country.”

“Logistics-focused real estate firms, which have traditionally invested in industrial real estate, are now eyeing the datacentre industry as an opportunity.”- Ankit Saraiya, Director, Techno Electronic & Engineering Services

There is also the aspect of playing to the strengths of established supply chains, which further dictate the spread of this datacentre market growth. Ankit Saraiya, director of Techno Electronic & Engineering Services, says, “Logistics-focused real estate firms, which have traditionally invested in industrial real estate, are now eyeing the datacentre industry as an opportunity for growth. This is because e-commerce giants, which are major players in both logistics and datacentres, have shown the potential for synergistic relationships between the two sectors. This increased interest from logistics real estate firms can further drive the competition and costs in Tier-I markets, leading datacentres to consider Tier-II markets as alternatives.”

To facilitate such moves state governments are also rolling out the red carpet. For example, Karnataka provides incentives and exemptions to attract investments of around Rs 10,000 crore, which it hopes will help the state establish a datacentre capacity of over 200 MW by 2025. Uttar Pradesh, where Yotta’s hyperscale facility is now located, has unveiled its datacentre policy with a target to attract investments worth Rs 20,000 crore.

WILL THIS CREATE MORE JOBS, THEN?

Well, yes and no. To explain this, Equinix’s Paul cites an internal company survey from this year to state, “People who are essential to day-to-day datacentre operations are fast becoming a scarce resource, as technologies powering these facilities develop at a rapid pace. This shortage will further intensify as 58% of Indian businesses plan to expand to new countries in the next 12 months. As a result, the need for education and collaboration to enable IT teams to optimise the deployment of this infrastructure will rise, driven by data protection, data analysis, cloud computing, and expertise in artificial intelligence and machine learning as the most important roles.”

Paul’s assessment is on point. The extent of manual operations at a datacentre facility is limited, which means that such facilities may not immediately generate low-value, high-volume and low-skilled employment en masse. Instead, the opportunities that this sector could create will include high-skilled tech resources to work in various nuances. Such a narrative will also lead to the proliferation of tech jobs beyond just the metropolitan hubs.

Techno’s Saraiya adds that India must adopt a multifaceted approach to achieve these employment and data processing goals. This approach includes enhancing data collection efforts, ensuring up-to-date and accurate information across various sectors, and investing in advanced data processing and analysis techniques for handling growing data volume and complexity. It also encompasses strengthening data storage and management capabilities, improving data accessibility for policymakers, researchers, and investors in a timely and granular manner, establishing robust data governance frameworks to ensure privacy, security, and ethical use, and implementing stringent data protection policies with strict penalties.

ARE OUR REGULATIONS READY TO DRAW IN SUCH BUSINESSES?

For the most part, from a regulatory standpoint, the Indian datacentre market has everything set to take flight. A big boost to this arrives in the form of data localisation mandates, despite not being set in stone. The recently passed Digital Personal Data Protection Act, 2023 did not push mandates for localising in India — but offered industry guidance towards how companies should approach storing personal data. In the latter, the government has recommended data storage in geographies apart from those that are blacklisted by the government.

While the upcoming Digital India Act, as well as future amendments to existing regulations, could potentially add further nuance to India’s data localisation and protection laws, the industry presently has a strong fillip to boost its capacity building. Driven by a steady growth of adoption of services, as seen in UPI crossing 10 billion transactions per month on 30 August this year, India’s rising datacentre market has a strong reason to invest in growth.

This growth, additionally, will only be further driven by both innovations, as well as increasing global regulatory efforts from nations to protect its data. With a similar premise offered to India as well, stakeholders of the entire ecosystem, including those looking for tech jobs beyond the IT and GCC sectors, are likely to see datacentres play bigger roles in the future.

By Vernika Awal

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