India’s data centre capacity is expected to more than double by FY27, reaching 2-2.3 GW, according to CRISIL Ratings. This significant growth is driven by increasing digitalization, rising adoption of cloud services, higher data consumption, and the rapid rise of generative AI (GenAI).
Key Drivers and Investment Needs
To meet the growing demand, an investment of Rs 55,000-65,000 crore is required over the next three years. These funds will primarily be allocated for land acquisition, building infrastructure, power equipment, and cooling systems. Operators, who typically allocate 25-30% of their capital expenditure to infrastructure, often build capacity in anticipation of future tie-ups, with utilization expected to reach 80-90% within 1-2 years.
Manish Gupta, Deputy Chief Ratings Officer, CRISIL Ratings said that to meet the growing data centre demand, an investment of Rs 55,000-65,000 crore is required over the next three fiscals, primarily towards land and building, power equipment and cooling solutions. “Data centre operators typically build infrastructure – land and building, which account for 25-30% of overall capex – with the expectation of future tie-ups. While this approach may expose incremental capacities to utilisation risks, strong demand is expected to support capacity utilisation to reach 80-90% within a year or two,1 he said.”
Strong Demand and Financial Outlook
CRISIL predicts that robust demand will minimize offtake risks, ensuring stable cash flows and steady credit profiles for operators. While a higher reliance on debt funding will moderately raise debt levels, utilization ramp-ups are expected to improve the debt-to-EBITDA ratio, projected to rise to 5.4x this fiscal before easing next year.
Mobile Data and AI to Drive Demand
Mobile data traffic, which has grown at a CAGR of 25% over the past five years, is expected to rise from 24 GB per user per month in FY24 to 33-35 GB by FY26. The rollout of 5G and the computational demands of AI applications are expected to further fuel the expansion of data centres.
Capacity Growth and Market Potential
Reports from JLL India and ICRA forecast significant growth, with data centre capacity increasing by 66% between 2024 and 2026 and more than doubling by FY27 to 2,000-2,100 MW. This expansion will require investments of Rs 50,000-55,000 crore and present a $25 billion market opportunity over the next decade, as per Avendus.
Customer Retention and Market Dynamics
High switching costs ensure stable client bases with minimal churn, supporting predictable revenues. The industry’s growth is driven by both existing players expanding capacity and new entrants entering the market, with hyperscalers playing a pivotal role despite their lower pricing (10-20% below average).
