Data Centres in India

Data Centres in India: Opportunity and Incentives


In the backdrop of India’s growth story as a major IT-ITes hub in the last two decades, the Indian data centres industry is now emerging as the next attractive opportunity for investors and developers. In 2022-23, several foreign investors, global majors and Indian corporates have announced investments into setting up data centres or expansion of their current capacities. As of November 2022, the data centre capacity in India was about 770 MW, which is expected to grow significantly in the near future, with Colliers projecting doubling of the data centre stock by 2025.[1]

Key Drivers for Growth

The demand for data centres in India is being driven by the need for data storage given the Government’s Digital India and data localization policies, increased data consumption and 5G roll-out which is expected to enable adoption of data intensive technologies such as internet-of-things (IoT) and artificial intelligence (AI). While the draft Digital Data Protection Bill, 2022 introduced by the Ministry of Electronics and Information Technology (MEITy) on November 18, 2022 proposes to allow limited cross-border transfer of personal data to Government-notified countries on specified terms and conditions, it is expected that the demand for secure storage and processing of personal data within India will continue to grow at a rapid pace. Personal data would still be required to be stored and processed within India in the absence of any exemption granted by the Government.

In addition, Indian users have been increasingly accessing various digital services such as e-commerce, cloud computing and OTT platforms. The e-commerce market in India is expected to grow by five times between 2017-2026[2] and the Indian public cloud services market is expected to grow by three times in an even shorter period between 2021-2026[3]. Therefore, the need for expansion of the current data capacity is apparent considering that India only has 6% of the global data centre capacity despite having 14% of the global internet users.[4]

Data Centres Policies

To incentivize investment and develop India’s potential as a global data centre hub, the MEITy had issued a draft Data Centre Policy in November 2020 with broad proposals about the strategies for growth of the sector and to enable a favorable ecosystem for operations of the data centres, which included providing infrastructure status to the data centre sector. Following the Finance Minister’s announcement in the 2022 budget speech, data centres was granted “infrastructure” status and included in the Harmonized Master List of Infrastructure sub-sectors in October 2022, which should ease bank financing for such projects.

The draft national policy also envisaged that the Central and State Governments would formulate their respective schemes and guidelines detailing the fiscal and non-fiscal incentives to be offered in the sector. While the policy is yet to be implemented at the national level, various Indian states have adopted state data centres policies to attract private investment in this capital and technology intensive sector. These state policies provide for incentives aimed at reducing the upfront and operational costs to be borne by the data centre operators as well as easing the compliance procedures to ensure a conducive investment atmosphere. Further, certain states such as Karnataka, Odisha, Tamil Nadu and Telangana offer a customised package of incentives for investments above specified thresholds.
Financial Incentives

    • Land and Infrastructure: Purchase consideration for acquisition or lease of land is a significant upfront cost in setting up data centres. Further, the associated stamp duty, registration fee and/or conversion charges payable for converting land from agricultural use to industrial use, if applicable, add on to the costs involved in land acquisition. Therefore, in order to attract investment, state data centre policies offer certain relaxations or concessional rates or reimbursement of fees paid in respect of transactions involving land for setting up of data centres. The concessions may also vary among the districts within the state. For instance, subsidies on acquisition of land under the Karnataka data centres policy are available in respect of land outside the Bengaluru Urban district. Additionally, recognizing the costs incurred in relation to municipal building approvals, the policies formulated by Telangana and Odisha provide for rebates on building fees and building plan approval costs.
    • Power: Data centres are a power intensive industry and consequently, incur significant electricity charges and taxes. In order to assure continuous energy supply, most state data centre policies contemplate dual grid power connectivity. The financial incentives typically offered across the states are in the nature of waiver or exemption from electricity duty, electricity tax and/or wheeling or transmission charges for specified periods after operationalisation of the data centre. Further, given the requirement for generator back up in the event of a power outage, certain states such as Telangana and Odisha have offered a subsidy on the fuel required for generators.

      Separately, the massive energy utilisation by data centres has led to global concerns regarding the carbon footprint created by them, which has resulted in a push towards usage of renewable energy for their operations. Usage of renewable energy has been specifically incentivised in the form of subsidies by some of the states in their data centre policies apart from the general benefits provided by the Central and State Governments schemes for utilization of renewable energy.

Non-Financial Incentives

    • Building Norms Relaxations: Data centres are specialised structures and regular construction norms applicable to residential and industrial buildings may not be suited to them. Accordingly, several states such as Haryana, Karnataka, Uttar Pradesh and West Bengal have provided or contemplate special provisions for data centre-related infrastructure, which include exemptions or relaxations from municipal building norms such as floor area ratio, maximum floor height and car parking spaces.
    • Ongoing Compliances: A number of state policies have further sought to reduce the compliance costs for a potential operator by allowing data centre operators to self-certify compliance under various labour legislations such as the Factories Act and the Shops and Establishments Act of the respective states. States such as Haryana, Odisha, Telangana and Uttar Pradesh have categorised data centres as essential service under the relevant state Essential Services Maintenance Act.
    • Approvals Process: Given the intersectional nature of data centres, setting up a data centre requires a number of approvals. The process of obtaining all such approvals may be time consuming and can add to the uncertainty of getting a return on investment. The state policies of Haryana, Karnataka and Tamil Nadu seek to provide a single window clearance mechanism for an expedited and timely approvals process.

While the data centre site selection will depend on factors such as geographical location, proximity to undersea and fiber optic cables and high volume data generating areas such as IT hubs, access to power, availability of skilled workforce and feasibility of general construction and operations, the incentives offered under the various state data centres policies will also play a key role in the choice of location of the data centres.

Opportunities for India

The remarkable proliferation of data centres in India, in light of the continuing rise in data usage, has created growth opportunities in various sectors of the Indian economy.

    • Real Estate: Data centres have become a distinct real-estate sub-sector, with more than 500 acres of land being acquired in India in 2022 for construction of new data centres.[5] In aggregate, India’s data centre stock as of November 2022, spanned 10.3 million square feet, which is predicted to double up to 20 million square feet by 2025.[6] The construction of the data centres itself is a specialised sector which can spur job creation in the country across skill levels.
    • Manufacturing: The draft Data Centre Policy 2020 seeks to promote domestic manufacturing of data centres related products (IT as well as non-IT) by incentivizing usage of domestic hardware and equipment. It also proposes to provide incentives for the global equipment manufacturers to set up manufacturing units in India. This is intended to lead to increase in domestic value addition and reduce dependence on imported equipment for data centres.
    • Renewable Energy: The global and national focus on clean energy has encouraged data centre operators to pivot towards renewable energy with some striving to establish carbon neutral facilities. The growing demand for data centres together with climate change concerns will necessitate that the upcoming facilities increasingly rely on renewable energy, incentivizing investment in alternative energy sources, including for captive power plants.


In the spirit of competitive federalism, the data centres policies framed by various states have sought to address the myriad concerns which an investor in the sector may have subject to the needs and capacities of the relevant state. Given that the draft national data centres policy has been in the public domain for more than two years, the MEITy may consider updating and releasing an operational national policy that supplements the state policies factoring in subsequent developments, including the Government’s focus on renewable energy and data security.

[1] Data centers: Scaling up in the green age, Colliers, November 2022, available at

[2] E-Commerce in India, Lok Sabha reference note, January 2021, available at

[3] India Public Cloud Services Market to Grow at a CAGR of 23.1% for 2021-26, International Data Corporation, December 1, 2022, available at

[4] Under the lens: India’s data center explosion, Binswanger Anarock, August 2022, available at

[5] India is expected to add around 250 MW Data Centre Capacity, Savills India, January 2023, available at–crossing-1-gw-capacity-milestone-in-2023

[6] Data centers: Scaling up in the green age, Colliers, November 2022, available at

This insight has been authored by Rajat Sethi (Partner), Raya Hazarika (Partner) and Ananya Kumar (Associate). They can be reached at, and, respectively, for any questions. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.