ICRA projects that India’s data center operational capacity will increase to 2,000-2,100 MW by March 2027, up from approximately 1,150 MW in December 2024. This expansion will require an investment of around ₹40,000-₹45,000 crore over the next two years. The growth is attributed to rising internet and data usage, as well as data localization initiatives in the country. Additionally, established and new data center players, who have entered the market in the last 3-4 years, have a development pipeline of 3.0-3.5 GW planned for the next 7-10 years, involving investments of ₹2.0-₹2.3 lakh crore, according to Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA.
The increasing adoption of cloud computing, 5G, machine learning, and IoT is expected to drive significant demand for data storage, while generative AI’s high computing requirements will further accelerate the need for data center capacity. Globally, hyperscalers have already signed multiple large-scale deals exceeding 300 MW, and India is expected to follow this trend. Favorable regulatory policies and the infrastructure status granted to the data center sector are expected to further support its rapid expansion in the coming decade.
The ongoing “data tsunami” is driving a surge in capital expenditure for data centers. Key factors influencing location selection include the presence of submarine cable landing stations, fiber connectivity, uninterrupted power supply, proximity to corporate headquarters, and disaster resilience. Mumbai and Chennai host the majority of landing stations, with Mumbai emerging as the preferred data center hub. Over the next three years, around 75% of upcoming data center capacity is expected to be concentrated in Mumbai, Chennai, and Hyderabad.
Co-location services, largely backed by hyperscalers, contribute 80-85% of data center revenues for major developers. However, as the number of data center developers in India has increased from five in 2019 to 18 in 2025, competition has intensified, shifting negotiation power toward hyperscalers and moderating rental prices. This has led to longer payback periods and impacted return metrics for developers in the medium term.
ICRA estimates that revenues for India’s top five data center players—who account for 75-80% of the industry’s revenue and operational capacity—will grow by 18-20% year-on-year in FY2025-26, driven by increased rack capacity utilization and the expansion of new data centers. Operating margins are expected to remain healthy at around 40-41% in FY2026. However, due to continuous capital expenditure, returns on capital employed are likely to be modest, as new facilities will take time to ramp up. With increasing competition and constrained pricing flexibility, profitability and return metrics for incremental business are expected to face pressure.
