Artificial Intelligence (AI)-driven demand for data centres in India is anticipated to contribute approximately 500 megawatts (MW) to the country’s data centre capacity over the next four years, according to a report published by Avendus Capital on Wednesday.
India, one of the fastest-growing data centre markets globally, has witnessed a significant increase in overall capacity, doubling from around 540 MW in 2019 to approximately 1,011 MW in 2023.
The report highlights that the sector is poised to expand at a compound annual growth rate (CAGR) of about 26 per cent over the next three years, attracting interest from a wide range of investors, including growth-stage private equity firms, long-term pension funds, and sovereign wealth funds.
India’s data centre market is currently undergoing a significant transformation, driven by increasing demand from AI applications, according to the report. The AI-led data centre capacity in the country has the potential to add another 500 MW in the next four years.
“With AI workloads set to surge and eventually outpace traditional cloud computing, the demand for data centres is also expected to rise sharply,” the report stated.
In India, hyperscalers are increasingly choosing to build and own data centres tailored to their specific requirements. This trend diverges from global practices and is supported by India’s long-term growth prospects and regulatory guidelines on data sovereignty.
Prateek Jhawar, Managing Director and Head of Infrastructure and Real Assets Investment Banking at Avendus Capital, believes that India’s data centre market will pave the way for the next wave of investments in real estate and AI, unlocking significant value for stakeholders.
“Developers can expect to generate an Internal Rate of Return (IRR) of over 25 per cent with a build-and-sell model, underscoring the sector’s potential for superior returns compared to other yielding real asset classes,” Jhawar remarked.
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He further noted that the overall demand for data centre capacity in India is expected to double to 2 gigawatts (GW) by 2026.
Currently, around 94 per cent of India’s data centre capacity is concentrated in the top seven cities. Over the next five years, Mumbai is projected to account for approximately 40 per cent of the additional capacity, with Chennai contributing around 25 per cent and Delhi about 15 per cent.
Jhawar also commented on the anticipated increase in transaction activity within both public and private markets. He expects scaled investments with a vintage of over four years to seek listing opportunities, while developers will look to secure larger capital inflows to support this growth. The industry is maturing with the entry of long-term investors committing over USD 250 million per investment, offering de-risked returns, he added.
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