In November, the Indian government came out with a draft of a national Data Centre (DC) policy. The intent was to take a fresh look at the existing policy, while at the same time attracting additional capital to meet the burgeoning demands of India’s digital needs.

At the outset, the draft touched upon focuses on simplifying existing rules, promote indigenous manufacturing and grant data centers “infrastructure” status, which could see big ticket investments. Infrastructure status has been accorded to roadways, railways and electricity grids. Data Centres would also be designated as an essential service under the law, much like telecom networks.

Even as the policy takes shape, action has begun on the ground. Earlier this week, the state of Uttar Pradesh (UP), which is the size of all Europe put together, approved a data centre policy. in UP, Singapore-based, ST Telemedia Global Data Centers (STT GDC), has proposed to build a greenfield data center at a cost of around $80 million.

The data ceter will have a critical IT capacity of 18 Megawatts (MW) in its first phase. It is to noted that only Telengana, a state in Southern India has a data center policy to speak of.

COVID-19 accelerates digital adoption

Since the onset of COVID-19, data consumption globally has surged and in India too it has gone up, on the back of Work From Home, tele-medicine, online education and digital commerce. This, coupled with the upcoming Personal Data Protection Law has made the IT Ministry to come up with a framework for data centres. At the outset, the government seems to have ticked many check boxes from simplification of rules to creating zones, which currently is concentrated largely in Navi Mumbai, Chennai, Noida and Hyderabad. As data use grows exponentially, DCs are critical to the functioning of the internet.

The Indian data centre industry has clocked $1.2 billion in revenues in 2020 fiscal and CRISIL expects the industry to log a rapid 25-30 per cent CAGR to $4.5-5 billion by fiscal 2025.

The issue needs to be seen in the context of a huge Asian push happening around data center investments. AT Tokyo, a data center player in Japan, announced the launch of a new data center in Tokyo which will commence operations in 2023. The facility will be approximately 32,000 square meters with five server room floors. Taking a step forward in the area, China unveiled its first underwater data center project in the Guangdong Province of Zhuhai.

According to Chinese state media China News Service (CNS), the underwater data center project is led by maritime technology company Beijing Highlander. The data center, containing racks of servers, will be sealed in an airtight vessel and will be submerged near a port in Zhuhai. In Hong Kong, ESR, a leading logistics real estate platform listed in Hong Kong is planning a foray into the data center business on the back of a successful Real Estate Investment Trusts listing.

Thailand-based logistics, industrial estates, and utilities company WHA Infonite and IT services company MFEC Public Company Limited (MFEC) have signed a data center agreement that would benefit the data center ecosystem in the country.

All these developments suggest that the interest around data centers is at an all-time high. Even as the interest is high, existing trends in India show that since the pandemic, there is an increased appetite for adopting technology. This has altered business models of many traditional companies the world over, and India is no exception. From e-commerce, digital health to a large chunk of 4 million IT employees adopting remote working, IT infrastructure requirements in the back-end have gone through the roof, according to Narendra Sen, founder, RackBank Datacenters. India has an internet user base in excess of 550 million and in March sett to commence 5G auctions.

Will this demand fizzle out?

However, all this demand will go waste if policies are not tuned to match this growth, as companies will consider alternative locations. If Bangaldesh, Sri Lanka offer similar incentives, companies may consider them.

It is here that the Indian government is looking at ease of doing business in the form of fast clearances, cheap and clean power: The policy emphasises single window clearance, in a time bound manner by state governments, standardisation in terms of security, and the creation of a category for data centres in the National Building Code, 2016. No business should have to go to 3 dozen government departments to get various clearances, which is time-consuming. Simplification of rules for DCs is necessary for its buildout,” said Sen. The policy draft advocates setting up of atleast four DC Economic Zones (DCEZ) in the country.

Data Centre Incentivization Scheme (DCIS)

The draft talks about a scheme to provide “fiscal and non-fiscal” incentives to data centres, indicating tax breaks for the sector.

Land parcels

States and union territories will be “encouraged” to provide land parcels for Data Centre Parks, along with the municipal supplies that this would entail, like water, electricity and so on.

Fast clearances, cheap power

The policy says it is important to “institutionalize processes for granting single window clearance, in a time bound manner by State Governments/Union Territoriess” and to that effect has mooted standardisation in terms of security, build, “IT [and] non-IT”, and the creation of a category for data centres in the National Building Code, 2016. Additionally, it has also stated that data centres be provided access to uninterrupted, clean and cost-effective electricity. A steering group will be created to execute this priority, consisting of Ministry of Electronics and Information Technology (MeITY), the Ministry of Power, and state governments.

Robust and cost-effective backhaul

MEITY said it would work with the Department of Telecommunications to make sure that data centres have access to fibre bandwidth, through utility corridors, common service ducts, infrastructure sharing, a Dial Before You Dig Policy, and improved international connectivity and cost of bandwidth.

The draft definitely seems to be a step in the right direction and industry seems to be bullish. However, creation of four zones has thrown up concern on whether competitors will be present in the same zone.

Also, India’s federal structure mandates working of state with the central government. How centre and state governments align on this, especially considering the recent fracas over the new farm laws.

India’s past efforts in creating Special Economic Zones to promote software exports have built a $191 billion industry. The country is eagerly looking at a repeat of this. Sooner, the better.