India is at a critical juncture in developing its domestic data centre infrastructure, which holds significant relevance for data sovereignty, economic growth, and staying competitive in AI, cloud, and digital services. Currently, a substantial portion of India’s data is processed internationally, underlining the pressing need for local infrastructure. This gap compromises not only national security but also service quality and the country’s competitive edge in the digital era.

India, despite generating about 20% of the world’s data, hosts a mere 3% of the global data centre capacity. There is an urgent need to expand given the country’s IT load surge from 350 MW in 2019 to a projected 1,825 MW by 2027, a staggering 24% CAGR. Investments in the sector surpassed $60 billion over five years, and it could exceed $100 billion by 2027, showing growing recognition of data centres as both a strategic asset and an economic opportunity.

The demand for domestic data centres has been bolstered by regulatory developments. The Reserve Bank of India’s mandate for local storage of payments data and CERT-In’s data retention directives compel essential sectors to localize sensitive workloads. These regulations underscore the importance of robust local data infrastructure as a compliance necessity.

Local data centres offer numerous advantages, not least improved performance and economic benefits. Proximity to end-users via regional or edge facilities significantly enhances service quality, dropping latency by more than 80%. This improvement is crucial as India pushes forward with digitizing governance, education, and private sectors. Additionally, domestic infrastructure boosts resilience by simplifying compliance and offering redundancy against geopolitical tensions and cyber threats.

As India’s digital economy grows, projections suggest the data centre market could reach $50 billion by 2031, driven by investments from hyperscale providers and local business needs. Globally, a shift towards regional data processing is evident, with expectations that 75% of enterprise data will be processed locally by 2025. However, despite this promising outlook, India’s data centre industry faces substantial implementation challenges. Regulatory hurdles, infrastructure gaps, supply chain issues, and labor shortages pose significant barriers.

One primary hurdle is the complex permitting process for large data centre projects, where projects over 20 MW may face lengthy delays due to up to 30 approvals for land use, environmental, and security measures. Streamlining these processes through enhanced policy frameworks like the National Single Window System is crucial, with models like Telangana’s TS-iPASS providing potential pathways for reform.

Power supply remains a pressing issue, with the demand projected to reach 9 gigawatts of IT load by 2030. While the Green Energy Open Access Rules allow developers to procure renewable energy directly, adoption isn’t consistent. Prioritizing long-term renewable PPAs and integrating data centres into energy balancing markets under national grid codes are vital steps forward.

Cooling technology is another critical factor, given AI workloads that demand high power density. With growing freshwater scarcity, future data centres must incorporate treated wastewater and innovative cooling solutions like liquid immersion systems. Strategic positioning using geospatial data, such as aligning with renewable corridors and wastewater sources, can enhance efficiency.

Finally, addressing the skills gap in the sector is paramount. With projections of a 100,000-worker shortfall by 2033, training in power management, and upskilling are essential to meet future demands and capitalize on economic opportunities.

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