New policies set to spur data centre investment

From easier credit to 5G, the Indian government aims to attract fresh capital

February 11, 2022

New government policies in India are aiming to boost investment in data centres, part of an effort to make the country a hub for the world’s growing data traffic.

Making India a data centre hub has been a goal in recent years for the government, which made several announcements supporting such efforts in its 2022 budget. This included attempts to make borrowing cheaper for operators, details on 5G auctions and spreading the internet to all villages in the country.

“The policy initiatives announced in this year’s budget will accelerate the data centre industry growth and spur investments in India,” says Rachit Mohan, Head, Data Center Advisory – India, Co-Head, Office Leasing Advisory – Mumbai, JLL. “It’s coming at a time when demand for such real estate had already been heating up.”

Data centre investment rose 60 percent globally in 2021, according to JLL. The surge stems in part from efforts to diversify portfolios and gain exposure to assets exhibiting long-term growth prospects.

Crucial reclassification

The new initiatives in India come amid a general push to further increase internet access for the country’s data-hungry population.

The key to the effort is changing how the government classifies data centres. The new policy will include them as part of the infrastructure sector, which will allow operators to raise long-term credit at cheaper rates. They can also use the “external commercial borrowing” route to raise funds and borrow from the India Infrastructure Finance Company.

The government grants infrastructure status to sectors deemed critical to the country's economic growth and job creation.


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"As the data centre industry is capital intensive and investments have a long gestation period, the move will enable domestic businesses to expand faster and make them more competitive,” says Mohan. “Access to low-cost, long-term funds could help data centre operators diversify across geographies."

The data centre industry, which has a current capacity of 499 megawatts, is expected to double by 2023, according to JLL Research. Mumbai alone accounts for 225 megawatts of the total capacity, followed by Chennai at 62 megawatts.

According to media reports, the government is working on an incentive scheme to encourage companies to set up data centres in the country, targeting an investment of Rs 3 lakh crore (US$40 billion) in the next five years. It plans to provide 3 percent to 4 percent of capital investment as incentives to operators, along with real estate support and faster clearances.

The national government has circulated the Draft Data Centre Policy and took feedback from all stakeholders to achieve this. The final policy is in the works.

Besides the central government, states, too, have formulated data centre policies to attract investments in the industry.

5G spectrum auctions in 2022

In addition to the status change, there are two other new initiatives set to benefit data centre investment: the auctioning of the 5G spectrum and connecting all villages via internet broadband.

The government aims to undertake the 5G spectrum auction soon so that private telecom operators can roll out the technology within 2022-23.

Unlike the current model, where data centres are built on the outskirts of major cities, 5G requires data centres to be constructed close to the call towers (or antennas) for lower latency — the amount of time it takes for data to travel.

When companies roll out 5G, they would be setting up smaller data centres inside cities.

Fibre optic cable connecting villages

The Indian government plans to connect all villages using optical fibre, including remote areas. For this, it will award contracts under the BharatNet project through Public-Private Partnerships (PPP) in the financial year 2023. It expects to complete the project in 2025.

BharatNet is a government-owned broadband infrastructure provider that operates and manages the National Optical Fibre Network. The aim is to provide a minimum of 100 Mbps broadband connectivity to all villages (over 600,000).

It will give a fillip to “edge data centres” — smaller facilities located close to the population. Recently, another government entity, RailTel Corporation of India, spoke of setting up 102 edge data centres via the PPP model.

"Infrastructure status is an enabler in further capacity addition,” Mohan says. “5G roll out and connecting villages with optical fibre will be the real game-changers, as these will increase data and content consumptions sharply."

Contact Rachit Mohan

Head, Data Center Advisory – India, Co-Head, Office Leasing Advisory – Mumbai, JLL

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