Indian datacenter policy ecosystem: Key expectations from industry

India’s data centre industry is rapidly expanding, supported by several policy initiatives, both at the central and state levels. The 2020 draft data centre policy was the first step and the news of it being revamped with AI and ML SOPs makes it better aligned with industry’s current requirements.

However, the country is still catching up with the global leaders like the US, Europe, and some parts of Asia. In this post, we will take a detailed look at the current data centre policies in India and compare them with policies in Singapore, Japan, Europe, and the US. We will also explore what more needs to be done to position India as a global leader in the data centre ecosystem.

1. India’s Datacenter Ecosystem and Policy Landscape

India currently ranks 13th in the world with 138 data centres and another 45 in the pipeline. India’s data centre market is expected to grow at a CAGR of 5.84 % with an estimated market size of US $9.27 billion by 2027. Considering this, MEITY (Ministry of Electronics and Information Technology) unveiled the draft data centre policy 2020. It provides standards and policies for authorisation and operationalisation of data centres in India. While this is still in draft stage, it is also set for revisions; to include ML and AI sops.

The Government of India, accorded the status of infrastructure to data centres with over 5 megawatt capacity of IT load. Apart from this, data centres are now a part of ‘Harmonized Master List of Infrastructure’ sub-sectors, under a new item in the category of ‘Communication’. This has eased financing for data centre projects, provides better access to long-term credit and funding from global investors.

Key policies driving the need for local data centres

1. India has also been focusing on strengthening privacy and data protection in the country. The Digital Personal Data Protection Law (DPDP Act 2023), emphasises the need to store data within the country, further driving demand for local data centres. It aims to establish a higher level of accountability and responsibility around collection, storage and processing of personal data of Indian citizens. This creates a legal impetus for both global and domestic companies to invest in setting up data centre’s locally.
2. RBI directs payment service providers to store all payment data in India for a minimum of six months. Any financial data sharing with foreign entities needs to be cleared by RBI, these regulations have resulted in demand for local data centres from the BFSI industry.
3. Under IndiaAI mission, the IT ministry recently floated tenders for public AI cloud infrastructure with 10,000 or more GPU capacity in a public-private partnership model. Data centres are at the core of such ambitious projects and the requirement of data centres with PEU of less than 1.35 means there will be a need for more data centres with a focus on sustainability.

State policies around Data Centres

At the state level, several regions are leading the way with dedicated data centre policies aimed at attracting investment:

• Maharashtra has announced incentives like subsidised power tariffs, discounted stamp duties and single-window clearance systems. It is also the first state in the country to allow additional incentives for green integrated data centre parks.
• Tamil Nadu and Telangana have introduced specific datacenter policies to create dedicated data centre hubs with improved connectivity, power availability, and infrastructure support. Telangana also offers exemptions from labour inspections while Tamil Nadu has offered stamp duty and taxation subsidies.
• Uttar Pradesh offers land at concessional rates, capital subsidies, and exemption from stamp duties. They offer dual power grid networks as well for data centres.

Most states offer subsidies and sops around power, stamp duty, taxation and land rates. These initiatives have helped India top major APAC countries in terms of highest data centre capacity, at 950 MW (excluding China). India is also likely to add the highest capacity addition during 2024-26, as compared to other APAC regions. Top states attracting data centre investment commitments include Maharashtra, Uttar Pradesh, West Bengal and Tamil Nadu.

2. The Global Datacenter Ecosystem: US, Europe, and Asia

United States

The US remains the largest and most advanced data centre market globally. The policy framework in the US is primarily driven by state-level tax incentives and environmental regulations. On the regulatory side, the Federal Energy Regulatory Commission (FERC) plays a critical role in balancing environmental concerns and operational efficiency for datacenters, particularly with regard to energy consumption and carbon emissions. Similarly, certifications like Uptime or NIST tier certifications, quality standards like ISO, HIPAA compliance for healthcare data are necessary for datacenters in USA.

Europe

Europe’s data centre market is shaped by stringent privacy regulations under the General Data Protection Regulation (GDPR) and an increasing emphasis on sustainability. EU’s green transition and digitization are central to their data centre policies.

Decarbonisation, mandatory efficiency reporting, focus on reducing energy consumption and promoting sustainability by imposing tighter restrictions on new builds are some of the key policy highlights. The EU’s push towards climate-neutral data centres by 2030 (CNDCP) further demonstrates the continent’s leadership in promoting green data centres.

Asia

Asia’s data centre market is diverse, with Singapore and Japan being key players. While Singapore has established itself as a data centre hub with its business-friendly policies and robust digital infrastructure, its government has recently paused approvals for new data centres to address environmental concerns, emphasising sustainability. Japan, on the other hand, has a thriving data centre market, supported by strong technology adoption, but the challenge of earthquake risks requires additional policy considerations for safety and disaster recovery.

Key Industry Expectations around data centre policy for boosting Datacenter Growth in India

India’s data centre policy has made commendable progress, but there is room for improvement. Here are key areas where additional policy support is needed:

• Energy Efficiency and Sustainability: Data centres consume massive amounts of energy. While several states offer power subsidies, a nationwide policy promoting the use of renewable energy and energy-efficient technologies (such as cooling systems and green data centres) could significantly reduce environmental impact. India has made strong in-roads in renewable energy generation with solar and wind leading the way. A national level policy in promoting green energy data centres will help the country achieve progress while staying on course to the sustainable development commitment.
• Single-Window Clearances and Faster Approvals: Though states like Maharashtra and Tamil Nadu offer streamlined approval processes, a nationwide single-window clearance system for data centre approvals would encourage quicker investment and construction, avoiding bureaucratic delays. This will greatly help increase data centre infrastructure in Tier 2 and Tier 3 cities as well.
• Disaster Recovery and Security: While India is progressing on physical security and disaster recovery for data centres, it must focus on creating resilient data centre ecosystems, especially in areas prone to natural disasters, like floods and earthquakes. With climate change resulting in urban flooding, droughts and other seasonal changes, it is high time India focuses on building resilient and sustainable data centres, by taking a cue from US and Japan’s stringent disaster recovery protocols.
• Tax Incentives for AI and Advanced Technology: To further promote AI adoption, the government should consider introducing tax incentives for companies investing in AI-ready data centres or adopting new technologies like machine learning, blockchain, and quantum computing.
• Cross-Border Data Transfer Regulations: Work on seamless yet secure cross-border data transfer frameworks, balancing privacy concerns and business needs, as seen in Europe under GDPR.

With its vast potential, India stands at the cusp of becoming a global data centre hub, provided it continues to evolve its policy framework. It is high time India has a common data centre policy that balances business growth with sustainability and privacy with operational ease.