India’s data center capacity is projected to more than double to 2-2.3 gigawatts (GW) by the fiscal year 2026-27, driven by increasing digitalization and rising investments in cloud storage, according to a December 23 report by Crisil Ratings, as published by Hindustan Times.
The growth in capacity comes as organizations expand their reliance on digital platforms, including cloud services, to meet computing and storage demands. This trend has accelerated in the aftermath of the COVID-19 pandemic.
To support this robust demand, incremental capital expenditure will be heavily financed through debt funding, leading to a moderate rise in debt levels, the report said. Crisil also noted that ongoing investments are necessary to maintain the growth momentum.
Manish Gupta, senior director and deputy chief ratings officer at Crisil Ratings, said data center operators typically construct infrastructure, such as land and buildings, which account for 25-30% of total capital expenditure, in anticipation of securing future client tie-ups.
Generative artificial intelligence (GenAI) is expected to provide a significant boost to data center demand over the medium term, the report highlighted. GenAI requires higher computational power and lower latency compared to traditional cloud computing, creating additional demand for advanced data center infrastructure.
The increasing accessibility of high-speed internet has also driven the rapid growth of data consumption in India. Mobile data traffic registered a compound annual growth rate (CAGR) of 25% over the last five fiscal years, reaching 24 gigabytes (GB) per month by the end of fiscal 2024. Crisil projected that this figure will rise to 33-35 GB per month by FY26.
To accommodate the growing demand for data centers, an investment of ₹55,000-65,000 crore will be required over the next three fiscal years. This capital will primarily go toward land and building development, power equipment, and cooling solutions, the report stated.
Both existing data center operators and new entrants are driving capacity expansions, Crisil noted. Once these capacities are operational and client contracts are established, operators benefit from predictable cash flows supported by a stable client base. The report emphasized that high switching costs for customers, including investments and the risk of business disruptions, contribute to low churn rates.
Despite significant capital expenditures for expansion, the debt-to-earnings before interest, tax, depreciation, and amortization (EBITDA) ratio of data center operators is expected to increase to 5.4x this fiscal year from 5x in the previous fiscal year, the report said. Anand Kulkarni, director at Crisil Ratings, noted that this ratio is likely to improve from the next fiscal year as capacity utilization ramps up.
The rising penetration of digital platforms, coupled with advancements in AI technologies and an uptick in mobile data consumption, is driving the need for enhanced data center infrastructure. The report concluded that these trends position India’s data center industry for sustained growth in the years ahead.