A recent report by ICRA projects a significant expansion in India’s data centre (DC) operational capacity, highlighting substantial growth in the sector. ICRA expects India’s data centre (DC) operational capacity to increase to 2,000-2,100 MW by March 2027 from around 1,150 MW as of December 2024, involving investment of Rs. 40,000-45,000 crore in FY2026- FY2027, supported by internet/data usage and data localisation initiatives. Additionally, both established DC players and new players, which have entered this sector in the last 3-4 years, have a development pipeline of 3.0- 3.5 GW to be delivered in the next 7-10 years, involving significant investments of Rs. 2.0-2.3 lakh crore.
ICRA said in its report that as part of the Union Budget 2025-26, the Government’s proposal to set up a centre of excellence in AI for education, the BharatNet project to provide broadband connectivity to all gram panchayats and start Deeptech Fund of Funds to provide access to skilled professionals in AI, cyber security and cloud computing, compliments the strong growth prospects for the DC sector in India.
Giving more insight, Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said: “While cloud, 5G roll-out, machine learning and internet of things (IoT) are expected to generate enormous data and storage requirements, generative artificial intelligence (AI)-led high computing requirements present a new wave of demand for DC capacity and a significant opportunity for DC operators. Driven by AI requirements, the global DC market has already witnessed multiple large deals (>300 MW) signed by hyperscalers and India is expected to follow the trend. This, coupled with favourable regulatory policies and an infrastructure status for the DC sector will support strong growth prospects in India in the coming decade.”
ICRA estimates the revenues for top 5 DC players (which account for around 75-80% of overall industry revenues and operational capacities in India) to expand by a sharp 18-20% YoY in FY2026, supported by an increase in rack capacity utilisation and the ramp-up of new DCs. The operating margins are expected to remain healthy in the range of 40-41% in FY2026.
While sharing his thoughts, Mr. Amit Sarin, Managing Director, Anant Raj Limited, said, “The data center sector in India is witnessing rapid growth, driven by increasing digital adoption, cloud computing, AI advancements and data localisation, however, despite India accounting for 28% of global data generation, the country currently holds just 1% of the world’s data center capacity. The demand for data center is much higher than current availability and future pipeline, we see the demand will continue to remain higher than supply for many years. This stark gap underscores the enormous opportunity for expansion and investment in the sector.”
ICRA further noted that as competition is heating up with the entry of new players, pricing flexibility is getting increasingly constrained, which will exert a drag on the profitability and return metrics for the incremental business. However, ICRA anticipates the leverage and coverage metrics of the players to remain comfortable in the medium term.