As the global race to scale up data centre capacity accelerates, driven by the growing demand for artificial intelligence (AI) and cloud-native workloads, India finds itself at a strategic crossroads.
Despite significant strides in digital adoption and connectivity, a large share of India’s data continues to be processed and stored overseas due to insufficient domestic infrastructure. This disconnect has far-reaching implications; not just for data sovereignty and national security, but also for service performance, economic growth, and India’s long-term digital competitiveness.
India contributes nearly 20% of global data generation, yet holds only about 3% of the world’s data centre capacity. This sharp imbalance highlights the urgency to expand domestic infrastructure. The country’s installed IT load has grown from 350 megawatts (MW) in 2019 to 1,030 MW in 2024, and projections suggest it could reach 1,825 MW by 2027; representing a compound annual growth rate (CAGR) of 24%.
Investments over the past five years have already surpassed US $60 billion, with future outlays expected to cross US $100 billion by 2027. This momentum signals not only a rising recognition of the strategic importance of data centres but also the economic opportunities they present.
Domestic data centres are no longer a luxury or secondary consideration; they are a foundational element of India’s digital economy.
Regulatory mandates have already begun anchoring demand. For instance, the Reserve Bank of India’s 2018 directive requires that all payments-related data be stored within India, while guidelines issued by the Computer Emergency Response Team-India (CERT-In) in 2022 have reinforced the need for critical data and logs to remain onshore.
These mandates are pushing sensitive workloads to domestic facilities, making local infrastructure a regulatory necessity for sectors such as banking, telecom, healthcare, and e-commerce.
However, beyond regulatory compliance, there are performance and economic imperatives for hosting data domestically. Locating data centres closer to end users through regional or edge deployments leads to significant improvements in service quality. Latency drops by more than 80% in some cases when compared to data routed through overseas servers, leading to faster payments, smoother video streaming, and more responsive enterprise applications.
This enhanced performance is critical as India continues to digitise governance, education, public services, and private sector operations at scale.
Localised infrastructure also boosts resilience. With infrastructure hosted domestically, compliance obligations such as rapid reporting of security breaches or outages under Section 70B of the IT Act become easier to fulfil. There is also greater redundancy and control in the event of geopolitical disruption, cyber threats, or technical outages in foreign jurisdictions.
Moreover, local hosting reduces dependency on international cloud providers, thereby supporting India’s larger goals of digital sovereignty and strategic autonomy. Economically, data centres are emerging as the digital economy’s equivalent of roads, ports, and power lines; core enablers of future growth.
India’s market for data centre services is projected to exceed US $50 billion by 2031, driven by both hyperscale investments and demand from domestic start-ups and enterprises.
Globally, analysts estimate that by 2025, nearly 75% of enterprise-generated data will be processed at regional facilities, underscoring the global trend toward decentralised infrastructure.
Despite this clear potential, India’s data centre growth faces major execution challenges. Regulatory delays, infrastructure gaps, supply chain constraints, and workforce shortages are slowing progress. One of the most critical barriers is the complex permitting process.
Large data centre projects, particularly those above 20 MW, must obtain up to 30 different approvals spanning land use, environmental compliance, utility access, and security certification. These processes often result in significant delays, capital inefficiencies, and project bottlenecks.
To accelerate deployment, there is a pressing need to reform and strengthen the National Single Window System to ensure faster, time-bound clearances. Successful models like Telangana’s TS-iPASS, which mandates fixed approval timelines and offers deemed clearances, can serve as a blueprint for national policy reform.
Power availability is another key constraint. India’s data centre sector is expected to require 9 gigawatts (GW) of connected IT load by 2030. While the Green Energy Open Access Rules enable developers to source renewable energy directly, uptake remains uneven.
To address this, policymakers must enable long-term power purchase agreements (PPAs) for renewable energy backed by energy storage solutions. Additionally, classifying data centres as flexible-demand consumers under national grid codes would allow them to participate in grid-balancing markets; unlocking both economic and environmental gains.
Cooling is an increasingly pressing concern as AI workloads push rack power densities to unprecedented levels up to three times higher than traditional IT infrastructure. However, this surge in cooling demand coincides with growing freshwater scarcity in many Indian cities.
To mitigate this risk, future data centres must be planned with treated wastewater access and advanced cooling technologies, such as liquid immersion systems. Leveraging geospatial data from initiatives like PM Gati Shakti can help in strategically locating data centres near wastewater pipelines, renewable energy corridors, and robust fibre infrastructure.
Perhaps one of the most overlooked yet critical issues is the growing shortage of skilled professionals. The data centre industry in India is projected to face a shortfall of over 100,000 skilled workers by 2033.
Currently, operators already struggle to fill key roles in power systems, thermal management, and regulatory compliance. This skills gap can delay project handovers, increase operational risks, and undermine the efficiency of new infrastructure.
A targeted skilling initiative under the National Skill Development Corporation (NSDC) and PM Kaushal Vikas Yojana (PMKVY), tailored specifically to the data centre sector, is urgently needed. Training programs must prioritise core operational domains and should be integrated into upcoming state-supported data centre parks that provide plug-and-play infrastructure, dedicated power, and fibre connectivity.
While India’s digital economy is growing rapidly, its ability to host, process, and secure its own data lags behind. Bridging this gap will require a coordinated national strategy that addresses permitting inefficiencies, promotes renewable power integration, ensures sustainable cooling, strengthens equipment supply chains, and closes the workforce gap.
If advanced in unison, these policy levers will not only enhance India’s digital resilience but also solidify its position as a trusted and competitive global hub for data infrastructure.
Dr. Sharanpreet Kaur is an Assistant Professor of International Relations at School of Social Sciences, Guru Nanak Dev University, Amritsar.
