Small towns, big compute: Data centre investors look beyond India's metros

The high energy demands of AI chips are pushing data centre investors to look beyond India’s metro hubs and tap into the country’s hinterland.

Sify Technologies, CtrlS Datacenters, ESDS Software Solutions, RackBank and others are shifting focus from traditional locations such as Mumbai, Chennai and Noida. Instead, cities like Nagpur, Raipur, Chandigarh, Jaipur, Ahmedabad, Lucknow and Kochi are emerging as attractive alternatives offering better returns.

State governments are actively incentivizing this shift with land subsidies, single-window clearances and relaxed power tariffs. The Chhattisgarh government, for instance, is offering capital subsidies ranging from `60 crore to `300 crore, along with duty exemptions and rental support. The state is also subsidising talent costs with 20% salary reimbursements—up to `50,000 a month per employee—for five years, according to the State’s policy document.


Rajasthan chief minister Bhajanlal Sharma unveiled a data centre policy in April, aiming to attract `20,000 crore in investment over the next five years. Similarly, Gujarat is offering capital incentives of `50–200 crore, along with tax waivers.

Revival of the edge

Executives said the AI boom could well mean a revival of edge data centres—smaller and closer to users—which haven’t gathered much steam over the last decade. That’s changing as cities like Mumbai and Chennai have become overpriced data centre hotspots because of their proximity to submarine cables landing on their shores.

“GenAI is the new engine that will fire investments to edge data centres,” said Rajiv Ranjan, associate director, cloud and AI, at research firm IDC India. “We expect more AI inferencing workloads to get deployed at edge locations, closer to customers in tier 2 cities.”

He also cited an emerging trend of modular or portable data centres, which are suited for small deployments and can be moved. According to IDC, investments in public cloud models at edge locations in the Asia-Pacific region (excluding Japan) are expected to grow from $15 billion in 2024 at a CAGR of 17% through 2028—a trend expected to be mirrored in India.

“We believe the inflection point for edge DCs is now,” said Vipul Kumar, VP, edge and network, CtrlS Datacenters. “A lot of AI workloads—especially inferencing—don’t always need to sit in a central cloud or metro hub. They can (and should) run closer to the edge, particularly for use cases in sectors like manufacturing, healthcare, surveillance, agriculture, or autonomous systems in tier 2 and 3 cities of India.”

CtrlS has deployed edge capacities in Patna, Lucknow and Bhubaneswar. The company is investing `500 crore in Bhopal, its first facility in central India. It’s aiming for expansion in GIFT City (Ahmedabad), Guwahati, Kochi and Nagpur, it said.

Sify Technologies said that while Mumbai, Chennai and Noida continue to be its growth epicentres, its edge model is also picking up pace. Raju Vegesna, Sify chairman and managing director, said the company has a $5 billion expansion plan that involves adding sites in tier 2 locations.

“We are going to invest in data centres not only in the six-seven metros but in the next 10-20 tier 2, tier 3 cities like Lucknow, Chandigarh, Nagpur with small capacities of around 10 megawatts to create these AI factories,” he told ET in February.

ESDS Software Solution is setting up a green data centre in Sahibabad in Uttar Pradesh designed for 600 high-density racks, 30 MW scalable capacity and GPU-ready direct liquid cooling, said chairman and managing director Piyush Somani.

AI infrastructure startup RackBank, which launched AI cloud business unit NeevCloud in 2023, is investing nearly `700 crore in cities such as Indore, Raipur and Assam. Clean energy momentum is enabling such locations to become attractive for data centres. For instance, CtrlS said it has commissioned a captive solar power facility in Nagpur. Such strategies are proving useful in power-sensitive and water-scarce regions.

To be sure, hurdles persist. Companies must invest in dual grid systems for power redundancy. Telecom connectivity and fibre may be sketchy in remote regions. Finding skilled professionals such as certified data centre operators and engineers continues to be a challenge in smaller towns.