India is a rapidly growing digital economy with a growing demand for cloud and digital networking services. Setting up a data center facility in India can cater to the ever-increasing digital economy. 

A data center is a secure space within a centralized location where computing and networking are concentrated to collect, store, process, distribute, or allow access to large amounts of data. In 2022, the government of India gave infrastructure status to data centers with a minimum capacity of 5 MW or more. 

According to Blackridge Research's Indian data center market report, the country has crossed 1GW data center capacity, making it one of the largest data center markets in the Asia-Pacific region. Furthermore, he data center industry in India grew from 350 MW in 2019 to 1030 MW in 2024.

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The country is witnessing a transition from an emerging to a developed market economy. India’s mobile data consumption is already the highest globally. The size of the country's digital population and the digital economy's growth trajectory could potentially increase the requirement for cloud infrastructure in India. Data center construction involves many factors. Let us take a look at how to build a data center in India. 

Step 1: Assesing the Cost of Building and Setting Up a Data Center in India

The cost of setting up a greenfield data center in India is approximately INR 40-45 crore (USD 4-5 million) per MW. For data center construction, the developer should acquire land in a location with good connectivity and less risk of natural disasters. The capex cost for setting up a data center operation in India is roughly 45% lower compared to the world average.

Apart from this, the cost of obtaining land in India, especially in the major metropolises, can vary depending upon the real estate value. Some of the key cost factors are given below:

Is Data Center Business Profitable in India?

The profitability of a data center business depends upon various factors like market demand, fill factor, location, infrastructure, etc. The compound annual growth rate (CAGR) of the Indian data center market is around 23.5%. To get the latest industry insights on return on investment (ROI), check out our new Indian data center market report.

What is a Building Fit Out? 

A building fit-out refers to transforming a raw building space into a fully functional modern data center. This process involves designing and implementing all the necessary infrastructure and systems to support the operation of IT equipment.

It typically includes installing raised flooring to facilitate cable management, setting up advanced cooling systems, implementing redundant power supply systems, establishing network cabling infrastructure, and integrating data center security measures. 

Data center design and infrastructure significantly influence the cost of setting up a data center. This includes the layout of the server rooms, cabling systems, access points, and security systems. Additional costs might be incurred for installing necessary data center infrastructure equipment, such as fire suppression systems and redundant power and data center cooling systems.

Smaller organizations can develop a modular data center and incorporate data centers into their office space. A single server room with the proper equipment can be a Tier 1 data center. 

What are Data Center Tiers, and How Does It Impact Cost?

Understanding data center tier certifications is essential when developing a data center. They are specific classifications of data centers that denote their infrastructure and capabilities. The organization named uptime Institute creates and administers data center tier Standards and certifications for data center design.

The classification ranges from Tier I to Tier IV, each with distinct redundancy, resilience, and security requirements. Tier 1 has the basic infrastructure, while Tier 4 has the most complex and redundant data center components with high power usage. These certifications will impact the build-out costs.

Read: A Comprehensive Guide to Data Center Infrastructure

Step 2: Evaluating and Selecting a Good Location to Build a Data Center in India

While building a new data center, the developer must select a suitable location. In India, most of the data centers are located mainly in Mumbai, Hyderabad, Bangalore and Noida. Some of the top datacenter companies in India provide their colocation services in these metropolitan cities. Additionally in metropolitan regions the developers may face challenges pertaining to scalability.

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The cloud service providers and colocation providers must carefully consider a range of factors while selecting a good location in India. Some of the factors are given below:
 

• Power Availability

• Connectivity

• Natural disaster risk

• Infrastructure

Power Availability

While setting up a data center, the developer must ensure the location fulfils the power demand with lower power tariffs. Furthermore, the developer must choose based on whether or not  the location provides 24/7 power without any outages. Many state governments in India provide subsidies for growing data center enterprises. Some of the subsidies include:

• Subsidy on Electricity Tariff 

• Provision for Dual Power from the Grid

• Electricity Tax Waiver

• Additional feeder facility

• Subsidy of fuel for backup power

Additionally, the data center provider must select areas with access to renewable energy sources like solar, wind, geothermal, and hydroelectric power to reduce reliance on traditional electricity and minimize their carbon footprint. To fulfil the power requirements of  their data center facilities, some of the major cloud service providers, like Microsoft, have inked a power purchase agreement  with renewable energy companies like RWE.

Infrastructure

India's power infrastructure has been historically challenging, but significant improvements have been made in recent years. Cities like Mumbai and Bangalore offer relatively stable power supplies and physical infrastructure, which is essential for datacenter operations. 

Water availability is another critical factor, especially for cooling systems. Coastal cities like Chennai and Mumbai have an advantage in this regard, but water scarcity in some regions needs to be considered. Additionally, the Indian government has been promoting the development of special economic zones (SEZs) in various states, which often offer better infrastructure and tax incentives for data center projects.

Natural Disaster Risk

A data center must be located in an area which is not prone to any climate and natural disaster risk, with cooler climates being preferable to reduce cooling costs.

Areas prone to extreme weather events, earthquakes, or volcanic activity should be avoided. 

Connectivity

Metropolitan cities in India have excellent connectivity options due to their proximity to submarine cable landing stations. For instance, Mumbai alone hosts several important cable systems, including the Asia-Africa-Europe-1 (AAE-1) and the Bay of Bengal Gateway (BBG).

This robust international connectivity ensures low-latency connections to global networks, which is crucial for data centers serving international clients. Additionally, the West Bengal government is planning to establish ten cable landing stations along the coastline by 2025.

Additionally, the government's Digital India initiative has led to the expansion of domestic fiber optic networks, improving connectivity across the country. Cities like Hyderabad and Pune are emerging as new data center hubs due to their improving connectivity infrastructure and proximity to tech industries.

Step 3: Understanding Data Center Subsidies and Policies in India

The draft data center policy of India 2020 incentivizes companies to develop and set up state-of-the-art data center facilities across the country. As mentioned earlier, the classification of data centers as infrastructure will help the developers to avail long-term credit from domestic and international lenders at easier terms and will give a boost to the investments.

Furthermore, some state governments in India have separate data center policies to incentivize data center development. Let us take a look at a few of the policies across different states:

Telangana State Data Center Policy

The Telangana State Data Center Policy was executed in 2018 to promote the growth of the data center industry in the state. The policy offers various incentives and benefits to attract investments, including capital subsidies, interest subsidies, land subsidies, stamp duty exemptions, electricity duty exemptions, and power supply guarantees. Some of the key policy points are given below:

Uttar Pradesh Data Center Policy

The Uttar Pradesh Data Center Policy was initiated in 2021 to establish the state as a preferred investment destination for the data center industry. The policy provides various incentives and benefits to attract investments and promote the development of data centers in Uttar Pradesh. Some of the key policy points are given below:

Karnataka Data Center Policy

The Karnataka Data Center Policy 2022 was introduced with the aim of making Karnataka a preferred destination for data center investments in India. It offers various incentives and benefits to attract investors and promote the growth of the data center industry in the state. Some of the important policy details are given below:

Tamil Nadu Data Center Policy

The Tamil Nadu Data Center Policy was executed in 2021 to promote the growth of the data center industry in the state. Key details about the policy are given below:

Step 4:Procuring and Building the Key Components of a Data Center

Data centers are complex facilities that house critical IT infrastructure. Understanding their key components is essential for data center construction. These components work together to ensure the data center's efficient, secure, and reliable operation. The key components of a colocation data center include:

• Servers and data center networking 

• Power distribution systems

• Cooling systems 

Details about some of the major manufacturers and suppliers are given below:

Data Center Servers 

Data center servers function as the brain of a data center, processing and storing information, while data center network infrastructure acts as the nervous system, facilitating rapid communication between components.

Furthermore, these are complemented by crucial support systems like power supplies, cooling systems, data storage, battery energy storage system, and management software, which are all housed within a structured environment of racks and cabling infrastructure. There are three types of servers, which are:

Rack-mounted: A rack-mounted server is a computer designed to be installed in a standardized server rack, optimizing space usage in data centers and server rooms. Rackmount servers come in various sizes, measured in rack units (U), with 1U, 2U, and 4U being standard configurations.

They typically feature high-performance components, redundant power supplies, and hot-swappable parts for reliability and simple maintenance. Furthermore, a rack server cabinet offers the flexibility to use servers from different manufacturers. 

Blade Servers: Blade servers are plug-and-play processing units with shared power feeds, power supplies, fans, cabling, and storage. Additionally, by compressing large amounts of computing capacity into small amounts of space, blade servers can dramatically reduce data center floor space requirements. In these systems, you may have eight servers in one case. Unfortunately, they can also raise power densities above 15 kW per rack, dramatically increasing data center heat levels.

Tower Servers: Tower servers are computers arranged in a rack or a cabinet, providing a foundation of communication between all devices within your data environment.

Data Center Power Distribution Systems

The data center has various loads, including IT equipment, air conditioners, fans, pumps, and lighting. Different types of equipment facilitate the power consumption in a large data center. Some of the critical equipment required for data center power distribution includes:

1. Medium-voltage switchgear, including MV/LV transformer

2. Low-voltage switchgear/switchboard / automatic transfer switch (ATS) 

3. UPS systems with input/output switchboard and UPS distribution switchboard 

4. Power distribution Units (PDUs) and remote power panels (RPPs) 

5. Busway 

6. Panelboard 

7. Rack Power Distribution Unit

Furthermore, the data center power density measure is watts per square feet (WPSF) of floor area. he estimated power requirements are around 50 to 150 WPSF, but as the servers and storage systems become ever more powerful and compact, they place a greater strain on the facility to deliver more power, reject more heat, and maintain adequate backup power reserves (both battery backup and onsite power generation).

In addition, more power requirements for the HVAC (Heating, ventilation, and air conditioning) system will become necessary. For additional details, check out our data center PDU market report.

Cooling Systems 

The server rooms can generate a significant amount of heat. The data center facilities require dedicated units with precision cooling capabilities. Heat densities in a typical cloud data center environment can be up to five times higher than in a typical office setting. The developer should install the required HVAC systems based on the space and data center design. 

The types of cooling units available in the market can be divided into comfort and precision computer room air conditioning (CRAC) units. The CRAC units are designed differently than comfort air conditioning systems. The biggest difference is that the comfort air conditioning systems are designed for human use, whereas the CRAC units are designed for the cooling of equipment. There are two types of cooling equipment, which are:

• Direct Expansion (DX) Systems

• Chiller-based cooling (Liquid cooling)

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Conclusion

India's growing digital economy presents a golden opportunity for data center development for data center companies in India and across the world. With its massive digital population, increasing data consumption, and supportive government policies, India is poised to become a global hub for data centers.

Frequently Asked Questions

How many Data Centers are there in India?

There are around 189 operational data centers in India. Apart from this, around 89 data centers are planned, and 23 are under construction.

Which city in India has the most data centers?

The financial capital Mumbai, has around 39 data centers, followed by Bangalore and Hyderabad, with 31 and 26 data centers. 

What is the Future of Data Centers in India?

The future of data centers in India looks promising, with solid growth potential driven by digital transformation, supportive policies, and increasing data consumption. The wave of digitization is anticipated to increase the number of internet users and boost internet penetration from approximately 63% in FY23 to 87% by FY29. 

Also Read: An In-Depth Guide to Data Center Construction Process

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