Investments in data centers will reach 45,000 crore in three fiscal years
The Indian data center industry is expected to receive investments exceeding 
45,000 crore in the next three fiscal years, till 2026. This is due to the growing demand for data and storage, which is attracting a diverse set of companies. Though the investments are high, and new players are entering the market, large established data center operators are expected to maintain their strong credit profiles, thanks to the long-term customer contracts that provide them with reliable cash flow visibility.
45,000 crore in the next three fiscal years, till 2026. This is due to the growing demand for data and storage, which is attracting a diverse set of companies. Though the investments are high, and new players are entering the market, large established data center operators are expected to maintain their strong credit profiles, thanks to the long-term customer contracts that provide them with reliable cash flow visibility.
Enterprises are increasingly adopting cloud solutions, leading to a surge in demand for data centers. The proliferation of over-the-top (OTT) platforms is also driving up retail data consumption. For instance, mobile data traffic has grown exponentially at a CAGR of 45% over the past five years. Furthermore, as 5G services become more prevalent, data consumption among retail users will continue to rise as new use cases emerge. This data must be stored in data centers.
Additionally, there is enhanced regulatory emphasis on local storage of personal data, as stipulated by the Digital Personal Data Protection Act and through policies formulated by some of the sector regulators. Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, says, "To cater to this rising demand for data, the installed capacity of Indian data centers is expected to more than double and reach 1,700 MW2 by March 2026 from an estimated 780 MW as of March 2023. This would require an investment of 45,000 crore. Investments would primarily be concentrated in a few cities such as Mumbai, National Capital Region, Chennai, Hyderabad and Pune, with Mumbai alone garnering about a third of these investments".
Mumbai is the most preferred location for data centers because of its sub-sea cable landing stations, proximity to larger enterprises, and continuous availability of electricity. The strong demand prospects have led to data center investments being planned by a diverse set of players, including not just well-established domestic and global data center operators and private equity firms, but also companies from sectors such as telecom, real estate, engineering, procurement, and construction. Operational and technical expertise is crucial to meet stringent service agreements, such as an uptime requirement of about 99.982%. This would be a key differentiator for players in this field.
Naveen Vaidyanathan, Director, CRISIL Ratings, said, "Amidst increased competition and elevated capex, the leverage of CRISIL-rated data center operators is expected to increase from 3.5x in fiscal 2023 to 4-4.5x over the next two fiscals before moderating in fiscal 2026. However, the project implementation risk is mitigated by the modular nature of capex, high revenue visibility amid long-term contracts with strict termination clauses and low, single-digit churn rates because of high switching cost for customers".
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