Data Centres may prove to be the next big opportunity in India. The business of setting up large data centres, trudging along nicely over the years, has picked up pace lately, with at least three major business groups announcing plans to enter this segment in the last four months alone, and established players going ahead with aggressive expansion plans of their own.
In July, the Adani group said it would invest up to Rs 70,000 crore to set up solar powered data parks in Andhra Pradesh.
This was followed by real estate major Hiranandani Group announcing a Rs 14,000 crore investment plan, and Reliance Industries partnering with Microsoft to provide cloud services to small and medium enterprises.
Last week, incumbent Oracle announced the launch of its Gen 2 Cloud region in Mumbai, with another planned in Hyderabad.
STTelemedia Global Data Centres (STT GDC), which currently has a capacity of 70 MW spread over 2.14 million square feet, plans to double this by March 2020, and grow further to 200 MW over 4 million sq ft, within three years.
A move towards a connected, inclusive digital economy means more and more data is being generated across platforms such as Cloud and social media as well as accessed by more people using mobile technology. All this data needs to be stored, managed and disseminated to users via public and private cloud, making data centres a key pillar in digital transformation.
“In terms of growth in data, India is outpacing even the developed world. More data means more data centres, which are growing at almost 25% CAGR. To meet this growing need, existing and new providers are building new capacities across India,” said Sumit Mukhija, CEO, STT GDC India, a joint venture between Singapore’s STT and Tata Communications.
According to various industry estimates, the data centre outsourcing market in India, currently pegged at close to $2 billion, is projected to grow at a CAGR of 25% to reach $5 billion by financial year 2023-24.
Data centres are measured in two ways — on the power that they consume and the data that they store or process.
Most companies use the first metric, as that is more defined.
In India, colocation setups are being deployed with cloud computing architecture, putting the country on a path to becoming one of the biggest hubs for colocation data centres globally. Colocation data centres are shared facilities where the infrastructure is used by different companies.
With cloud adoption rising, a robust and scalable infrastructure is critical.
“What drives us forward is the fact that cloud computing is now moving towards edge computing. In the course of the next few years, we anticipate the edge to become the most mission-critical part of an organisation’s digital ecosystem,” said Sunil Khanna, Managing Director, Vertiv India, a provider of data centre equipment and services that projects demand will be driven by the IT, BFSI and telecom industries.
In edge computing, the data is processed closer to where it is being generated, rather than a central cloud or data centre.
Alongside the growth in mobile data consumption, the government’s digitisation drive and thrust on Smart Cities is also fuelling demand for more data centres. Besides, data is moving from being stored on-premise to the cloud, with many enterprises adopting the ‘as a service’ model of infrastructure consumption.
Initially, the large investments in the space came from established hyperscalers like Amazon Web Services and Google.
“The cloud market is growing at 40% and a lot of investment is going towards supporting this and building next-gen infrastructure. Partnerships like the one between Reliance and Microsoft or a real estate firm entering this business are quite unique to India,” said Naveen Mishra, senior director analyst at Gartner.
Reliance has said it would offer Microsoft cloud services to small and medium enterprises through Jio, and also set up data centres that would run Microsoft’s Azure cloud computing platform.
India’s push for data localisation, which require certain kinds of data to be stored within the country, has generated significant demand already as it is estimated that over 75% of this data now resides outside the country.
Last year, the Reserve Bank of India mandated that all data of financial transactions should be located on servers in India. It also clarified that the data which is taken outside of India for processing should be brought back. This forced global companies such as Mastercard and Visa to begin the process of storing data in India. Banking and financial services institutions have been the earliest adopters of local data centres.
The industry had been growing at close to 30% in the last ten years, boosted by the introduction of 3G and 4G, followed by the rollout of Jio mobile services, said Sunil Gupta, who is often called the data centre man of India and who the Hiranandani group roped in to spearhead their foray into this space due to his vast experience in the field.
“Given the number of customers, India needs 15 times more capacity. India needs large scale data centres in the same way that it needs roadways,” said Gupta, the CEO of Yotta Infrastructure, a company that plans to set up large self-sufficient data parks which would give customers the option to increase capacity in the same location. This is similar to what the Adani Group plans to do by building data parks instead of standalone buildings that host data centres.
Small Can Win
Even as large operators double down on their expansion plans, many small, single-city data centre operators are also now going national.
“We will go from 30,000 square feet to 2 lakh square feet by 2020-22,” said Nikhil Rathi, CEO of Web Werks, which has over the last two decades operated two data centres in Mumbai and Pune. Web Werks, in addition to expanding its presence in Mumbai, will reach in to the major metros and a few other cities by then.
Similarly, ESDS Software Services, which started out with operations in Nashik, its home market, is now expanding in India and outside. “We were among the first firms to be empanelled with the government and are seeing a lot of business coming from Smart Cities; and public distribution schemes of many states connect to our cloud,” said Piyush Somani, CMD, ESDS Software Services.
These local data centre players are now actively looking beyond Tier I cities and setting up operations in Tier II towns.
“There is definitely a lot of interest in this space and we’ve seen an increase in international queries in the last few months,” said Rishu Sharma, Principal Analyst, Cloud and Artificial Intelligence, IDC India.
However, given the challenges of operating in India, most international operators are keen to enter either through a partnership or by acquiring a local player.
Netmagic, which is among the oldest players in this space, was acquired by Japanese tech firm NTT a few years ago and remains among the biggest in this space, with further capacity expansions planned in Mumbai, Chennai and Bengaluru.
Some smaller international firms have, however, successfully set up local operations though.
The US-headquartered Linode, which offers data centre solutions mainly to the software developer community, set up base in the country recently.
“We already had a lot of customers in India, but now instead of Singapore, their data will be hosted in India,” said Blair Lyon, VPMarketing, Linode.
Good for Everyone
The boom in demand for data centres has also resulted in growth for other allied businesses.
Networking firm Juniper Networks, for instance, has seen the transition from 90% of early internet traffic being hosted outside India to almost 70% of the OTT content being hosted domestically.
Juniper is working on making the data centre infrastructure invisible for applications to ride demand at will, rather than being constrained by defined network.
The need for high quality experience is driving all the top global Cloud players into having an India footprint, said Pankaj Kitchlu - Systems Engineering Director (India-Saarc), Juniper Networks.
“We keep continually working with all Enterprise, Cloud and Service Providers to build platforms that securely connect the consumption point to the nearest content delivery point,” Kitchlu said.
Yet, despite the opportunities, the challenges are still significant. Access to uninterrupted power supply and land banks in areas where there is demand are two key worries.
“India’s power infrastructure woes limit the expansion to tier 1 cities, where real estate is expensive and scarce, thereby driving up capex costs. Furthermore, building and operating quality data centres demands highly-skilled professionals in specialized areas such as cooling, power, security, network,” said STT’s Sumit Mukhija.
These skills aren’t always readily available, compelling operators to invest significantly in training people themselves.
The lack of a clear set of rules is another bottleneck. That is, however, expected to change with the National Digital Communication Policy 2018 which promises regulatory reforms.
The policy document calls for evolving an enabling regulatory framework and incentives to promote the establishment of international data centres, content delivery networks and independent interconnect exchanges in India.
Be that as it may, as 5G rollouts and use cases for industrial IoT start gaining steam, demand will increase, said Gupta, the ‘data centre man of India’. “It will only go up, and not slow down.”
Bimal Khandelwal, CFO STT GDC India, in conversation with Digital Creed The demand for data centres has increased significantly in the Indian sub-continent
Further enhances market leadership as India’s largest data centre operator with the addition of a purpose-built hyper scale facility spread over
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