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Amid global data-centre expansion, it is imperative that India rapidly scale sovereign capacity to remain competitive and safeguard its digital future.
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A global race to expand data centre capacity is accelerating, with demand surging across Artificial Intelligence (AI) and cloud-native workloads, making India’s data centre infrastructure decisions central to long-term competitiveness. Despite rapid growth in its digital footprint, much of India’s data continues to be processed and stored overseas due to limited domestic capacity. India accounts for nearly 20 percent of global data generation but has only about 3 percent of the world’s data centre capacity, highlighting the magnitude of the gap. This imbalance has triggered a sharp rise in investment, with installed Information Technology (IT) load increasing from 350 megawatts (MW) in 2019 to 1,030 MW in 2024. It is projected to reach 1,825 MW by 2027, indicating a compound annual growth rate (CAGR) of 24 percent. Investments between 2019 and 2024 totalled over US$60 billion, with forecasts surpassing US$100 billion by 2027.
India accounts for nearly 20 percent of global data generation but has only about 3 percent of the world’s data centre capacity, highlighting the magnitude of the gap.
This article examines the case for expanding domestic data centre infrastructure in India. It analyses the regulatory, infrastructural, and sustainability bottlenecks slowing delivery and proposes a coordinated policy agenda to align future growth with national priorities of data sovereignty, sustainability, and global competitiveness.
Domestic data centres are becoming a core requirement for India’s digital economy, with regulatory obligations already anchoring the demand base. The Reserve Bank of India’s (RBI) 2018 directive mandates that all data related to payments be stored within the country, while Computer Emergency Response Team-India (CERT-In)’s 2022 guidelines on incident reporting and extended log retention further push critical workloads onshore. Together, these measures have made domestic capacity a structural necessity for sectors handling sensitive information.
Beyond regulatory drivers, domestic data centre capacity delivers critical performance and compliance advantages. Locating infrastructure closer to users through edge or regional facilities has evidently delivered substantial performance gains, with studies demonstrating latency reductions of more than 80 percent compared to centralised cloud models. This proximity directly translates into higher service quality, enabling faster digital payments, smoother video streaming, and more reliable enterprise cloud applications. Local hosting also strengthens resilience and simplifies compliance by reducing dependence on centralised infrastructure and obligations, such as rapid incident reporting under Section 70B of the Information Technology (Amendment) Act, 2008, that are easier to fulfil when infrastructure is located within the country.
Domestic data centres are becoming a core requirement for India’s digital economy, with regulatory obligations already anchoring the demand base.
The economic opportunity is equally significant. India’s market for data centre services is projected to exceed US$50 billion by 2031, reflecting both the scale of hyperscale investment and the innovation it enables. Data centres now rank alongside highways and renewables in capital formation and job creation, signalling their growing role as foundational infrastructure in the digital economy. Furthermore, global forecasts anticipate that by 2025, nearly three-quarters of enterprise-generated data will be processed in regional facilities, underscoring the structural shift towards distributed capacity worldwide.
India’s data centre expansion is constrained by key challenges in permitting, power availability, water and cooling, equipment procurement, and skilled labour. Each of these bottlenecks has policy levers that can reduce risk, lower costs, and accelerate delivery. So far, much of the data centre growth remains concentrated in Mumbai, which continues to lead the country’s capacity additions. Land scarcity and grid congestion in the city are intensifying, prompting developers to explore inland hubs such as Nagpur, Lucknow, Jaipur, and Kochi. These locations are benefiting from improved fibre connectivity and proximity to renewable-energy corridors, along with greater availability of suitable land, positioning them to support the next wave of domestic expansion. Addressing these bottlenecks will require a coherent national policy agenda that advances infrastructure, sustainability, and workforce readiness in parallel to sustain long-term growth and resilience.
Permitting As of 2025, facilities exceeding 20 MW account for more than half of the installed capacity. Developers typically require up to 30 separate clearances spanning land use, utilities, environment, and security, a process that can extend timelines by several months. While these approvals apply across all projects, the delays cause greater capital and capacity logjams in the case of large campuses. Streamlined frameworks can help reduce this burden by strengthening the National Single Window System into a time-bound workflow and drawing lessons from models such as the Telangana State Industrial Project Approval and Self Certification System Act, 2014 (TS-iPASS), which demonstrates the effectiveness of fixed timelines and deemed approvals. Embedding CERT-In checks early and integrating them into a national data centre policy that institutionalises time-bound clearances would yield predictable, uniform permitting across states.
India’s market for data centre services is projected to exceed US$50 billion by 2031, reflecting both the scale of hyperscale investment and the innovation it enables.
Power India’s connected IT load is projected to reach 9 gigawatts (GW) by 2030. While the Green Energy Open Access Rules allow operators to contract for renewable power directly, the uptake has been uneven, and most facilities continue to rely primarily on a coal-based grid. This dependence drives up both emissions intensity and long-term operating costs. Updated grid codes that classify data centres as flexible demand create opportunities for them to participate in demand response and grid-balancing markets. To make clean supply more viable, policies should enable standardised long-term renewable power purchase agreements backed by storage, along with clear rules for carrying forward surplus renewable generation across billing cycles. Together, these measures would lower risk for operators, improve cost certainty, and support round-the-clock integration of clean energy into data centre operations.
Water and Cooling AI-heavy workloads are driving rack power densities to nearly three times those of traditional applications, sharply increasing cooling demand. This growth coincides with acute groundwater stress in many Indian cities, where freshwater use for industrial cooling is already constrained. Without parallel investment in treated wastewater infrastructure and advanced liquid-cooling technologies, expansion risks collide with sustainability limits. Pradhan Mantri (PM) Gati Shakti’s geospatial tools can help align data centre siting with treated wastewater pipelines, fibre corridors, and power bays, while making treated wastewater the default input for cooling in water-stressed regions, reducing reliance on groundwater. Linking verified efficiency improvements to the ‘Perform, Achieve, and Trade’ scheme and carbon-credit markets can further convert operational savings into financial returns, reinforcing both sustainability and cost efficiency.
Equipment and Materials Core hardware such as transformers, switchgear, and precision cooling units is still heavily import-dependent, with procurement cycles often stretching over a year. Such delays can defer project commissioning by half a year or more, tying up capital and slowing the addition of new capacity. Recent tariff hikes on imported electrical components have further complicated procurement, raising both costs and uncertainty for developers. Production Linked Incentive (PLI)-style incentives could encourage investment in local manufacturing by offsetting higher initial costs and providing scale advantages, gradually reducing reliance on imports. At the same time, expanding the Bureau of Indian Standards (BIS)-accredited testing facilities would shorten certification timelines, enabling both domestic and imported equipment to reach projects quickly. These steps would create a more resilient and predictable supply environment, ensuring India’s data centre expansion can keep pace with demand.
By 2033, the sector is projected to face a shortage of over 100,000 skilled workers, when most operators already struggle to fill critical roles.
Labour and Skills The demand for specialised professionals in power systems, thermal management, and regulatory compliance is rising faster than supply. By 2033, the sector is projected to face a shortage of over 100,000 skilled workers, when most operators already struggle to fill critical roles. These gaps result in delayed project handovers, increased operational risks, and limited efficiency of new facilities. A targeted skilling mission under the aegis of the National Skill Development Corporation (NSDC) and PM Kaushal Vikas Yojana (PMKVY) could help address this challenge. Training programmes should be tailored to data centre requirements, prioritising power engineering, advanced cooling, and compliance roles. If linked to state-level data-centre-ready parks with dedicated power, fibre connectivity and single-window approvals, such pipelines would ensure that a qualified workforce is available when campuses come online, enabling timely delivery and sustained growth of the domestic data centre ecosystem.
India’s burgeoning digital economy is generating vast volumes of data, yet regulatory hurdles, infrastructure constraints, supply-chain dependencies, and workforce gaps continue to slow the growth of data centres. Streamlined approvals, scalable renewable procurement, integrated planning for power and cooling, resilient supply chains, and project-linked skilling can close the capacity gap while safeguarding data sovereignty and sustainability. Advancing these levers in unison will enable India to build a predictable, investment-ready data-centre ecosystem that underpins long-term digital growth.
Srishti V. Sinha is a Research Assistant at the Observer Research Foundation.
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Srishti Sinha worked as a research assistant for the Digital Societies Initiative at ORF. Her research focuses on the governance of emerging technologies, with a ...
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