India’s AI ambitions face a reality check. India generates 20% of the world’s digital data but holds only 3% of global data canter capacity, according to industry reports. This gap poses a challenge to India’s goal of becoming an AI powerhouse.
The solution lies in building localized data canters across tier-2 and tier-3 cities. Finance Minister Nirmala Sitharaman has allocated INR 2,000 crore (about $240 million) for the India AI mission in the Union Budget 2025-26, targeting GPU infrastructure and connectivity solutions. This investment signals the government’s commitment to bridging the digital divide.
Currently, Mumbai, Chennai, and Bengaluru dominate India’s data canter landscape. Mumbai accounts for 52% of India’s total data canter capacity, while Chennai holds 16%. Together, Mumbai and Chennai comprise 68% of the total installed capacity. This concentration creates bottlenecks and higher costs for businesses outside metro areas.
Why It Matters Now
AI workloads demand ultra-low latency and massive computing power. Legacy data canters struggle to meet these requirements. Next-generation facilities require GPU clusters, liquid cooling systems, and renewable energy setups to handle AI-intensive tasks effectively.
The Digital Personal Data Protection Act (DPDPA) further accelerates demand for local data storage. Companies must now store Indian user data within the country, driving additional infrastructure needs.
Market Impact in India
India’s data canter industry was valued at US$10 billion in FY 2023-24 and saw a 139% capacity growth from 2019 to 2024.Industry projections suggest cumulative investments in India’s data canter sector could reach US$20-25 billion by 2030, fuelled by AI workloads and cloud services demand.
Global players like AWS, Microsoft, and Google are investing heavily in Indian infrastructure. Google recently signed an MoU with Andhra Pradesh for an AI data canter in Visakhapatnam. Meanwhile, domestic players like Reliance Jio and Yota Infrastructure are expanding their footprints.
Edge data canters are emerging in cities like Jaipur, Kochi, and Patna. These smaller facilities reduce latency for real-time AI applications and IoT services. For businesses in tier-2 cities, this means faster response times and better user experiences.
Strategic Advantage
Localized data canters offer several business advantages. Reduced latency improves application performance, especially for AI-driven services. Lower real estate costs in non-metro areas translate to operational savings. Regional facilities also ensure better disaster recovery and data redundancy.
The government’s 100% FDI allowance under the automatic route attracts foreign investment. States like Maharashtra, Tamil Nadu, and Telangana offer capital subsidies and tax exemptions for data canter projects.
Risks and Considerations
High land costs and site availability challenges persist in metro markets. Many existing facilities need infrastructure upgrades to support AI workloads. Power reliability and Fiber connectivity remain concerns in tier-2 markets.
India’s carbon neutrality goals require data canters to operate on renewable energy. This adds complexity but also attracts ESG-focused investors. Companies like Adani Connex are already investing in 100% green-powered facilities.
What Business Leaders Should Know
India’s AI market is expected to reach US$20-22 billion by 2027, growing at a 30% CAGR. Generative AI could contribute significantly to India’s GDP by 2030, but no widely cited estimate confirms the US$400 billion figure. These numbers highlight the massive opportunity ahead.
Businesses should evaluate their data storage and processing needs now. Companies relying on AI applications must consider latency requirements and compliance obligations. Early partnerships with regional data canter providers could offer cost advantages and better service quality.
The upcoming ET Soonicorns Summit 2025 will feature discussions on this topic. Industry experts Jai Asundi from the Centre for the Study of Science, Technology, and Policy, and Abhinav Aggarwal from Fluid AI, will explore how localized infrastructure can drive inclusive growth.
India stands at a critical juncture. The country’s digital transformation depends on solving infrastructure gaps quickly. Success requires collaboration between government, private players, and technology companies to build AI-ready facilities that serve all citizens, not just metro users.
