The rise of edge data centres in tier-2 and tier-3 cities
Did you know that although India generates a remarkable 20% of the world’s data, its data center capacity only comprises 3% of the global share? With such a significant disparity between data generation and storage capacity, it’s clear that India has tremendous potential to grow its data center infrastructure. Investing in expanding this infrastructure could be a game-changer for India’s digital economy, opening new opportunities for growth and innovation.
A recent study by CareEdge Ratings has unveiled a promising prospect in India’s domestic data center industry. The study anticipates a doubling of data center capacity in India over the next three years (2023 to 2026), from approximately 0.9 GW (gigawatts) to nearly 2 GW. This surge in capacity is projected to create substantial investment opportunities, with an estimated capex requirement of Rs 50,000 crore during this period.
The demand and diverse benefits of edge data centres
For those who may have missed the recent developments in India’s edge data center growth, let me explain. Presently, India ranks 13th in the global data center market with 138 data centers and an expected CAGR of 5.84%. By 2027, the projected market value will be around $9.27 billion. These figures indicate a growing demand for efficient and accessible data storage and processing capabilities. While 5 to 7% of the data centre capacity is present in tier-2 and tier-3 cities, the next surge of growth is expected to come from smaller centres.
In the era of digital dominance, individuals and organisations are generating and consuming an unprecedented volume of data. As India’s digital footprint expands, data centers are crucial in managing this data deluge. However, as the demand for data continues to surge, the significance of edge data centers is on the rise. Edge data centers, with their decentralised data processing model, are becoming the new frontier in data management.
Strategically locating data centers closer to end users’ geographic locations ensures better performance and lower latency during data-intensive, time-bound applications. Latency refers to the time it takes to transfer data between its source and destination. One of the significant factors driving the establishment of edge data centers in smaller cities is the need to minimise latency for end-users in these regions.
Real-time data processing is crucial for delivering efficient applications and services. Therefore, it is imperative to ensure that the edge data centres are located geographically close to the end-users, especially in non-metro locations. By reducing latency, the data centres of ICT (Information and Communications Technology) companies enhance user experiences and enable seamless, immediate interactions on their digital platforms.
ICT players invest in edge data centers to provide cloud interconnect and colocation services. This enables next-gen low-latency transmission for emerging IoT applications.
Additional benefits and demand drivers
As digital connectivity improves in non-metro cities, smartphone and other digital device use has significantly increased. The government’s supportive policies have also contributed to this trend. Consequently, the demand for data services is proliferating. As e-commerce, education, healthcare, fintech, and other sectors shift towards tier-2 and tier-3 cities, there is a need for solid data infrastructure. This has led to collaborations between ICT entities and these sectors to meet the ever-increasing demands of tech-savvy customers.
One significant advantage of expanding beyond metropolitan areas is cost efficiency. Due to lower land, human resources, and maintenance expenses, companies can benefit from more effective capitalisation on infrastructure investments. This is made possible by the robust data processing capabilities that result from increased cost efficiency. However, conducting a proper assessment that considers power infrastructure and connectivity costs is essential to optimise financial savings.
Another advantage of locating data centres in tier-2 cities and beyond is compliance with regulatory requirements for data localisation. This is driven by the need for data security and privacy. Edge data centres, strategically located in smaller cities, can comply with regulatory mandates by keeping sensitive customer data within specific geographic areas.
Companies that prioritise data security and integrity while complying with data sovereignty regulations prefer a localised approach to data management. Information and Communication Technology (ICT) firms that use best-in-class technologies with fully secure networks for advanced threat protection and encryption are more likely to succeed in such a regulatory environment.
Conducive policy measures from the government
Conducive policy measures by the Central and State Governments encourage the spread of edge data centres into tier-2 and tier-3 cities throughout India. The Centre has already granted data centres infrastructure status.
Real estate policies in states like Maharashtra, Uttar Pradesh, Tamil Nadu, Telangana, and Karnataka are favourable for establishing data centres. These policies aim to reduce the upfront and operational costs of data centers. For instance, Uttar Pradesh provides capital, interest, land subsidies, stamp duty exemptions, and dual power grid supply to attract private investments in its Noida data center infrastructure. States like Odisha and West Bengal have also declared their data center policies to encourage investments.
Vice President-Secure Power Division
Schneider Electric Greater India
A Central Government enterprise, RailTel, plans to build edge data centres in over 100 tier-2 and tier-3 towns on railway premises, accelerating the digital transformation of smaller cities.
India’s data centre occupancy levels are expected to improve by the end of this year. They are currently at around 75-80% and are predicted to increase due to industry tailwinds. Additionally, expanding data centres beyond significant metros will be beneficial in meeting the growing data needs of various industries, such as online gaming, OTT, and live streaming platforms. These expansions will also support the requirements of 5G, AI applications, and financial transactions requiring real-time processing and data analysis for faster decision-making.
Locations in tier-2 cities and beyond present more opportunities for constructing eco-friendly data centers. This is mainly due to the greater availability of space and less stringent regulations, making it easier to incorporate sustainable practices like advanced cooling technologies and renewable energy sources. These measures align with the industry’s overall trend towards sustainability, benefiting both people and the planet. This makes it an excellent and rewarding proposition.
