India’s data centre operational capacity to increase to 2,000-2,100 MW by March 2027

The revenue for top 5 data centre (DC) players, which account for around 75-80% of overall industry revenues and operational capacities in India, to expand by 18-20% YoY in FY2026, supported by an increase in rack capacity utilisation and the ramp-up of new DCs.

According to rating agency ICRA, 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.

The growth is supported by internet/data usage and data localisation initiatives. 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- 2.3 lakh crore.

“While cloud, 5G roll-out, machine learning and internet of things (IoT) areexpected 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,” said Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA.

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.

The presence of landing stations, fibre connectivity, uninterrupted power supply, proximity to tenant’s headquarters and high score on disaster proofing are some of the key parameters a DC operator would look for in a location.

“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,” said Amit Sarin, Managing Director, Anant Raj Limited.

Mumbai and Chennai have maximum landing stations, with the former being the preferred location for a DC operator. Around 75% of the upcoming capacities in the next three years are concentrated in Mumbai, Chennai and the Hyderabad markets.

The operating margins are expected to remain healthy in the range of 40-41% in FY2026. The return on capital employed (RoCE) is likely to be modest as the DC players are in continuous capex mode and new DCs will ramp up over a period of time.

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.

As India strengthens its position as a global technology hub, businesses will require robust and scalable infrastructure to support AI-driven applications, cloud computing, and data-intensive operations.

This is expected to drive significant investments in Colocation and edge data centers.