Data centres – here today, here tomorrow: India outlook

RUTH:
Hello and welcome to Ashurst's podcast series on data centres. Here today, here tomorrow. I'm Ruth Harris, a finance partner specialising in data centre financing, and I head up the Ashurst's Data Centre Global group. This is our fifth podcast in the series, and I'm delighted to be joined by my partner, Kalpana Unadkat. She's co-head of our India practice and a corporate and M&A lawyer. Kalpana knows the market and regulatory landscape extremely well in India, having practiced here for over how many years?

KALPANA:
25.

RUTH:
25. One of the takeaways from our data centre seminar in London earlier this year was the importance of the Indian market when looking at global data centre investments, and I'm looking forward to unpacking this with Kalpana in this podcast. So Kalpana, let's start with the bigger picture. What are some of the trends you are seeing in the data centre industry in India?

KALPANA:
Thank you very much, Ruth, for having me on this podcast. I'm glad to be here and to talk about such fast moving space, especially the data centre industry in India. Let's look at the bigger picture and honestly, there's a lot happening in this space. The scale of demand we are seeing is unprecedented. Today, we are seeing a massive demand. India has around 1.2 gigawatt of live IT load capacity. In 2025 alone, we added roughly 250 megawatts pushing the total to now 1.3 gigawatts. And experts now predict capacity will rise to 1.8 gigawatt by 2027 and reach 4.5 to five gigawatt by 2030. That is five times growth.

RUTH:
That's quite some growth. That's quite some growth and presumably driven by a combination of all the usual factors. So cloud, AI, FinTech, sheer scale of digital services consumption, and of course the requirements around data location.

KALPANA:
That's right. As you know, India's population continues to grow steadily today. Today, India has a growing tax heavy population of approximately 1.4 billion. The scale alone is a big factor. More importantly, there are over 850 million internet users in India. So when you have got nearly a billion people online, the demand for digital services is not just growing, it is exploding. So when you compare this with the US, it's twice the number of users when you look at the US.

RUTH:
Yeah, I suppose that's the eyeballs factor and the need on the ground to have proximity.

KALPANA:
And this also plays into why India is a growth market, right? I mean its strategic position allows it to cater for both local and international data traffic, minimising latency. So India is like conduit between the Middle East and Southeast Asia, a regional interconnectivity hub and is home to a number of subsea cables, which is boosting international data transfer.

RUTH:
Okay. So in India, are there any particular hubs, any data centre hubs that you'd like to mention?

KALPANA:
Oh yes, absolutely. I mean the growth is concentrated if you look at it in a few key hubs, but it is starting to expand. Mumbai today dominates with over 50% share of national capacity thanks to subsea landing stations strong connectivity. Chennai follows with around 20 to 21%, which is fueled by subsea connectivity and strategic location to Southeast Asia and favourable policies. I'm also seeing a lot of activity in Hyderabad, Bangalore, and Pune, which are strong as enterprise and tech markets. Interestingly, you have got this tier two cities like Nagpur, Kochi, Ahmedabad, they are starting to pop up now on the map and offered for edge deployments or for DR backup.

RUTH:
DR backup. So do you want to maybe say what that means?

KALPANA:
Yeah, it's basically is disaster recovery backup.

RUTH:
Okay. Yeah, that makes sense.

KALPANA:
And that's where this tier two cities, we are seeing a lot of activities there.

RUTH:
Okay. And of course Google, I mean Google made some announcements recently, how about that?

KALPANA:
Yes, absolutely. If you look at recent reports, Google is planning 6 billion investment in Andhra Pradesh, one gigawatt campus, which would be the biggest in Asia.

RUTH:
Well, that's a good indicator of how seriously the big players are looking at India. So what type of facilities are you seeing being developed and who buy?

KALPANA:
So typically in India we have so far operator-led builds, especially by telecom players like Airtel through Nextra. Then we are also seeing a surge in joint ventures and platform plays where Indian operators team up with global infrastructure funds, pension funds, etc.

RUTH:
Yeah, so that's a familiar point. Chris Grey spoke about the importance of joint ventures in an earlier podcast that we did and the importance of JVs cannot be underrated. Joint ventures seem to me to be key for regional data centre projects as you're combining local market knowledge with all the global expertise. So do you have any examples maybe of JVs in India?

KALPANA:
So we have seen some real estate and utility companies have entered this space providing land and infrastructure while leasing out to the operators. So the models obviously are getting more creative. There are a few major joint ventures that are making waves too. For example, if you look at AdaniConneX, which is a 50-50 JV between Adani Group and EdgeConneX. Also, we have Digital Connexion, which is a three-way JV among Reliance, Brookfield, and Digital Realty. There is also Colt-RMZ Group where Colt Data Centre Services have teamed up with real estate giant, RMZ Group. So we see quite a few real estate companies also entering this space.

RUTH:
That's really interesting. And so let's move on to occupiers then. Is it all the usual suspects?

KALPANA:
I mean, yeah, you are right. From customer perspective, the top drivers are definitely hyperscalers, which are the big cloud players, banks and FinTech and also AI and high-performance compute clients who all need dense power and cooling and increasingly streaming platforms. In fact, gaming companies are also driving data centre demand in India.

RUTH:
Oh, that's really interesting. And actually gaming companies that we all know they're there, but they haven't been mentioned on any of our previous podcasts. So that's an interesting thought. But so taking India then, what stage of growth are we at in India? Do you think there's capacity for future growth? You've talked about that at the start of this podcast, but what are the prospects looking forward for India?

KALPANA:
Great potential. I mean India is, today, if you look at statistics, India is generating about 20% of global data, but we have got to only just three to 5% of data centre capacity.

RUTH:
Okay.

KALPANA:
So there is a lot of headroom the way I look at it, and bottom line is you look at India is in such a high growth phase right now, and data centres are at the heart of it. So it is about how fast you can scale, where you should locate and how you structure your entry. There are lots of opportunities, but also there are a lot of moving parts from land and power to tax compliance and FDI.

RUTH:
Yeah. There's a lot of interesting points packed into that. We'll come onto those. But I mean, I can imagine in India more than anywhere it's about who you know. It's not so much about what you know, it might not be so much about how much money you have even, but it's about having the right contacts that's going to be so key.

KALPANA:
Absolutely.

RUTH:
So what's fueling this growth in India specifically, would you say?

KALPANA:
I mean, honestly, Ruth, I think it's a mix of demand, pull, and policy push as they are both really powerful right now when you look at it. First from demand side, you have got over 850 million internet users and with digital payments, OTT streaming, cloud adoption, and now AI workloads, data generation in India is exploding. Every major cloud provider is scaling up. Even startups are pushing into data heavy use like generative AI, gaming, and FinTech.

RUTH:
Sure. And all that data, all that compute power, it's got to live somewhere.

KALPANA:
Exactly, exactly. So it has to live within India for a variety of reason, not least latency being close to the eyeballs as you say. But also there is a policy push the Indian government is saying, "You want to operate here? Then don't store data locally."

RUTH:
Well, fair enough.

KALPANA:
That's the truth. Whether it is financial services, insurers, healthcare, e-commerce or telecom players. So last year we saw the Digital Personal Data Protection Act, which I like to call it DPDP Act. I mean that was passed.

RUTH:
So that's about data privacy.

KALPANA:
Yes, yes. And it is a big deal because the DPDP Act lays down a clear framework for how companies can collect process, store and transfer personal data in India. So if you are an enterprise collecting user data, especially the sensitive data, you are now expected to store that in India and the government can resist cross-border transfers of data. So this pushes Indian companies and global platforms to host workloads within India's border.

RUTH:
Right. And this is a theme we're seeing. The data can't leave the country, so the infrastructure has to be in the country.

KALPANA:
Exactly. And compliance is no longer a legal checkbox. It is a major demand driver for local hosting.

RUTH:
Okay. So that's a great example of a push policy. What about pull policies? What kind of things are going on in India there?

KALPANA:
So of course we have got states like Tamil Nadu, Maharashtra, Uttar Pradesh offering serious incentives, be it land, power, and tax benefits to bring in data centre investment.

RUTH:
Okay. So let's unpack that. Land, what do you mean? Do you mean making land available through issuing relevant permitting? Pre-approved hubs? What kind of thing are we talking about?

KALPANA:
So when I say land benefits, what I really mean is that states are enabling access to ready-to-go land and easy to zoning. It doesn't really mean gifting land. I wish it was, but it's not. So for example, in Maharashtra, the government has earmarked specific zones like MIDC, industrial parks, which is dedicated data centre parks that comes with pre-approved clearances, stamp duty waivers, especially for lease. So that's very, very important.

RUTH:
Okay. And of course you mentioned that developers also need to have the power, the fibre. And on previous podcasts we've covered how power and fibre drive the location and drive the speed to market. So can you tell me a bit about the power and fibre situation in India?

KALPANA:
So power and fibre provision is improving and with submarine cable projects, India is finally being seen as a regional interconnect hub. Having mentioned that, India's aim to hit nine gigawatts by 2030, but the grid capacity, especially when you look at for power and sustainability, it's a real stretch.

RUTH:
That's a familiar story, isn't it? And it's the elephant in the room. So what are you doing in India about evolving the grid?

KALPANA:
No, so you're absolutely right. Power is, as you said, is the elephant in the room and there are still localised fibre connectivity and grid issues, particularly outside of the major hubs. What we are seeing is that many operators are now signing green energy PPS that is long-term power purchase agreement with solar and wind farms, especially in Karnataka, Maharashtra and Tamil Nadu. We are also seeing investment in on-site renewables, battery storage, and I have also heard talks about hydrogen-ready campuses in the future. So it's not easy, but the direction is very clear. If India wants to hit nine gigawatts, the grid has to evolve. And I think I can see it is starting to.

RUTH:
Okay, that's good. So we've talked about land, we've talked about power and fibre. Shall we talk about some other pool policies? I know that there are certain tax incentives in India. Could you tell us a little bit about that?

KALPANA:
Absolutely. This is actually one of the big pool factors. A lot of states in India are offering attractive incentive packages specifically for data centres. And the usual incentives are stamp duty exemptions on land deals, electricity duty waivers, starting from five to 10 years, and concessional power tariffs if DC is classified under infrastructure or industrial use. There are also state-level GST, which is good service tax, reimbursements, especially on capital goods or construction materials. And in some cases we have seen capital subsidies up to 20 to 30% of your infrastructure cost.

RUTH:
So do these kick in automatically then? Does it matter where you are? They'll just kick in wherever you're setting up?

KALPANA:
Not quite.

RUTH:
Okay.

KALPANA:
Not quite automatically. You usually have to apply through the state's investment promotion office or industrial development body. And in many cases, they're linked to performance as well, how much you invest, how many jobs you create, how fast you go live. Also, if you're setting up in a special economic zone or if you are importing green energy equipment, there might be customs or GST exemptions too.

RUTH:
Okay, that's really interesting. But okay, they're not going to be the same everywhere, are they? So you can apply, but there's going to be a different level depending on the different location, I suppose.

KALPANA:
You are spot on. It really varies by the state. For example, Uttar Pradesh is offering capital subsidies of up to rupees 20 crore per megawatt. Tamil Nadu gives 100% stamp duty exemption and power cost reimbursements. Maharashtra is very big on fast track approvals and land access. And if you look at Telangana, it gives you extra benefits if your data centre meets green building or sustainability benchmarks.

RUTH:
Yeah, massive pool factor to particular locations, a really important factor when deciding where.

KALPANA:
Yes, absolutely. In fact, if your project is heavily CapEx driven and you are deciding between cities, state incentives can shift the needle. It is worth doing a proper side-by-side comparison, see which location gives you the best mix of incentives, infrastructure readiness, and not to forget, power availability.

RUTH:
So it's all in the mix. Some real tax incentives there and it looks like lots of other incentives, but how do you go about planning for all of this? How do you actually set about deciding where to build and what will be available?

KALPANA:
So I think if you do it right, this can really improve your IRR. I mean I have seen projects where state incentives could easily share 15 to 20% of your upfront cost.

RUTH:
Okay. And so presumably the planning is just get in there early, look at the different areas, work out the IRR for each area and factor it all in lots to take into account. Let's shift the gear a bit and let's talk about investors from outside India and what they need to consider. So if you're a foreign investor looking to build or buy into a data centre in India, what does the legal and reg, if you like, landscape look like and what do investors need to be thinking about upfront?

KALPANA:
Yeah, this is really a key part of this conversation. My bread and butter, especially now that India is attracting so much global capital into digital infrastructure, right?

RUTH:
Sure.

KALPANA:
First the good news, India allows a hundred percent FDI, which is foreign direct investment in data centre companies under the automatic approval route. That means you don't need prior government.

RUTH:
Okay, that's really interesting.

KALPANA:
But there is an important exception to that. Here, the but comes. If the investor or the beneficial owner is from a country that shares a land border with India, and here we are talking about China, Pakistan, Nepal, Bangladesh, Bhutan, Myanmar, Afghanistan, then very famous Press Note 3 of 2020 kicks in.

RUTH:
Okay. Okay. So Press Note 3, do you want to tell us what that is?

KALPANA:
So that means as an investor, you must get prior approval from the Indian government before investing in or acquiring an Indian company including data centre. That means there is no automatic approval. And it does not apply just to new investment, it also applies to any change of ownership or control. So if a foreign investor from this non-restricted country sells their stake to an entity which is linked to say Hong Kong, China, then that triggers Press Note 3 and effectively you would need approval from the government, which could take time.

RUTH:
Let me get that right then. So are you saying that because of Press Note 3, even indirect changes of control can bring you into the approval zone?

KALPANA:
Yes.

RUTH:
Okay.

KALPANA:
As I mentioned the restrictions, if you have the investor or the beneficial owner from a country which shares land border.

RUTH:
How long does that take then?

KALPANA:
Approvals can take time in many cases, six to nine months, sometimes even longer because this is sensitive issue as far as India is concerned. So if there is any exposure in your structure or your LP base, I would definitely recommend that it is important to plan early, disclose early to your advisors, lawyers, and align your timelines accordingly because this approval can take time.

RUTH:
And have the relevant restrictions in the LP agreements, I suppose. Some really interesting, some great points to note there. Shall we quickly touch on any particular preferred legal structure? So what kind of corporate entities do you see used in India?

KALPANA:
So I think most foreign investors use a private limited company structure as their entry vehicle either as a wholly owned subsidiary or through a joint venture with a local partner.

RUTH:
Why is that then?

KALPANA:
I think this structure is compliant with FDI rules. It is easy to scale and familiar to Indian regulators, lenders, and authorities, and it is very flexible for things like board control, exit rights, governance, et cetera.

RUTH:
Okay. So what about limited partnership or limited liability partnership? Do you see those?

KALPANA:
Yes, yes. LLPs are generally avoided as they come with complications around debt funding, governance and procedural compliance. In my view, private company is just a cleaner option for investors.

RUTH:
Okay, great. And so we talked a little bit before about the JVs and the partners. Do you want to say anything more about who's partnering up?

KALPANA:
So I think if you decide to go down a joint venture route, pick a partner who adds real value. Ideally they would bring local expertise like land zoning expertise, access to state level data centre incentives, which are very, very important, power connection related support or experience in navigating telecom, environmental or operational clearances. Also make sure your JV agreement is robust with regard to clear governance terms, board and management rights and exit clauses, which you would see typically drag along, tag along, or call or put options.

RUTH:
Sounds like something where we need to get in touch with you if we need that. And I might be wrong, but I'm sure I heard some sort of advantage around going a bit big like the five megawatt mark. There's something special there even though I suppose that's not big anymore these days. But tell me something about this threshold of five megawatt.

KALPANA:
I think yes, that is one point I think that is often overlooked, but really important is five megawatt threshold. Basically once your data centre hits an IT load of five megawatts or more, it gets officially classified as infrastructure under Indian policy and that then opens up bunch of doors for you. For starters, it gives you access to long-term debt, cheaper financing through external commercial borrowing, which is, we call it, ECB and also makes you eligible for rates and weights. Plus it just adds credibility when you are dealing with state governments, utilities, or investors. This can really shape your financing, your valuation and how you are viewed by regulators and your partners.

RUTH:
That's so interesting, but do you know what? I think we're running out of time now. I could talk forever about data centres generally, but particularly in India, there's so much going on. Thank you so much for joining us and talking us through some of the pull policy factors and the push policy factors. Talking about how important JVs are, not only finding the right partner for India, but you have to be really selective for states as well. It seems like the rules are so different, in all the different states, you've got to really be aware of that connecting with all the advisors in that area.

Certainly so much going on in this space. So it's a real privilege to have spoken to you today and to cover all of those interesting insights. Remember, to the listeners, if you are new to the data centre industry and you found some of the terminology baffling or you just want to know more, please do get in touch with either myself or Kalpana or if you just want to speak to any of our specialists, they'll be able to share with you our jargon busters and we keep these regularly updated or even visit ashurst.com and have a look on our data centre hub to get more information.

So if you'd like to find out more about the issues raised across all of our legal outlook series, get in touch with us, visit ashurst.com and don't miss out on any future episodes. So that's it from me today. Thank you very much, Kalpana, and thanks very much to all of you for listening. Goodbye for now.

KALPANA:
Thank you. Goodbye.