India data centre opportunity - From emerging demand hub to integrated data centre powerhouse

India’s data centre market is witnessing rapid capacity expansion, driven by strong digital demand tailwinds and a surge in infrastructure investments. Its competitiveness is anchored in structural cost advantages and strengthening infrastructure, while demand continues to accelerate on the back of multiple converging digital and regulatory drivers. Large-scale investments, coupled with sustainability-led innovation, are accelerating the evolution towards high-density, AI-ready data centre infrastructure. At the same time, AI is fundamentally reshaping data centre architecture, driving a shift towards ultra-dense, high-performance, and more efficient infrastructure.

An estimated USD90 billion opportunity is expected to emerge by FY35 across the end-to-end data centre value chain, extending well beyond core capacity build-outs into adjacent infrastructure and services. Delivering next-generation infrastructure increasingly requires deeper supplier collaboration and a more integrated, innovation-led ecosystem. Data centres are also emerging as critical national infrastructure, playing a central role in economic growth, digital sovereignty, and global competitiveness. This momentum is further reinforced by a strong and evolving policy framework that is enabling infrastructure development, AI adoption, and data governance. Targeted policy incentives and reforms are strengthening investment inflows while unlocking the next phase of ecosystem-led growth.

India’s data centre sector is at an inflection point where demand, capital and technology are converging to drive large-scale infrastructure development. The transition toward AI-led workloads is fundamentally changing the design, scale and economics of data centres across the country. With strong domestic demand and favourable cost structures, India is well positioned to become a key node in the global digital infrastructure ecosystem.

Rohan Rao

Partner, Deal Advisory

KPMG in India

Key highlights of the report

Structural demand drivers are accelerating data centre growth

Multiple structural demand drivers, including cloud adoption, data localisation mandates, AI workloads, BFSI digitisation, and 5G-led edge computing, are fundamentally reshaping the data centre landscape in India. These forces are increasing both the scale and complexity of demand, necessitating higher-density, low-latency, and more resilient infrastructure. In response, data centre capacity has expanded sharply, with recent years witnessing accelerated additions and a step-change in growth momentum. The sector has transitioned from a nascent market to a high-growth infrastructure segment, supported by strong investment activity and evolving enterprise requirements.
Cost and infrastructure advantages position India competitively

India offers a compelling value proposition for data centre investments, driven by lower construction costs, access to cost-efficient power, and a highly competitive talent base. This advantage is further reinforced by improving power and connectivity infrastructure, a maturing supplier ecosystem, and increasing availability of land and supportive policy frameworks. At the same time, demand for data centres continues to intensify, supported by the same structural digital drivers across industries. Together, these factors position India as a high-growth, structurally advantaged market, with the potential to evolve into a key global digital infrastructure hub.
Evolution towards sustainable and high-density infrastructure ongoing

Operators are actively embedding sustainability into operations through renewable energy adoption, advanced cooling systems, and data-driven efficiency tracking to improve energy performance and reduce emissions. Simultaneously, hyperscalers and domestic players are committing substantial capital to expand capacity, strengthen cloud ecosystems, and enable AI-focused infrastructure. This investment surge is expected to drive a multi-fold increase in capacity over the coming decade, particularly as AI workloads significantly raise power density and infrastructure requirements. As a result, the sector is transitioning towards more complex, energy-intensive facilities, necessitating a stronger focus on technological innovation and sustainable design.
AI workloads are transforming data centre architecture

The rapid rise of AI and high-performance workloads is transforming how data centres are designed, built, and operated, with a sharp increase in compute density, power requirements, and cooling complexity. Traditional configurations are being replaced by AI-native designs that incorporate advanced chipsets, liquid cooling technologies, and significantly higher rack densities. This evolution is also redefining infrastructure needs across power, storage, and networking, requiring more resilient, low-latency, and high-throughput systems. At the same time, there is a growing emphasis on sustainable and future-proof design, integrating energy efficiency, renewable power, and scalable architectures to support long-term demand.
Value chain expansion is driving ecosystem collaboration

The data centre ecosystem presents a significant opportunity spanning design, construction, power, cooling, and network infrastructure, alongside security and ancillary services. A substantial share of value lies in upstream and downstream infrastructure, including utilities integration, fibre connectivity, and advanced cooling solutions, along with lifecycle services such as maintenance and managed operations. Delivering next-generation infrastructure increasingly requires deeper supplier collaboration and a more integrated, innovation-led ecosystem. This growing complexity is driving closer coordination among operators, hyperscalers, and specialised suppliers to enable scalable and efficient delivery.
Favourable regulations are enabling long-term expansion

Policy support has progressively evolved from foundational digital infrastructure initiatives to targeted interventions promoting AI adoption, hyperscale investments, and sector growth. Regulatory measures such as infrastructure status, incentives, and streamlined approvals have significantly improved ease of investment and operational scalability. At the same time, data protection and localisation frameworks are increasing demand for domestic data storage and processing, positioning data centres as critical compliance infrastructure. Recent fiscal and regulatory measures aimed at simplifying entry requirements and attracting global capital are further strengthening investment inflows. Collectively, these initiatives are enabling a stable, long-term environment for sustained capacity expansion and ecosystem development.

The rapid evolution of digital consumption, alongside regulatory push for data localisation, is creating sustained demand for domestic data centre capacity. At the same time, the emergence of AI-centric infrastructure is reshaping requirements across power, cooling and compute layers. These structural shifts present a significant opportunity for India to build a resilient, scalable and globally competitive data centre ecosystem.

Raghavan Viswanathan

Partner, Deal Advisory

KPMG in India