Positive digital infrastructure macro trends in India

Sander Mutsaers, Telecom Infrastructure Banker, Asia Pacific, recently spoke at the Datacloud India & Edge Forum 2020 in Mumbai. Known as the defining forum for International Data Centre, Cloud and Edge Executives, the event explored the value of building, locating or outsourcing data center, colocation, cloud, Edge and IT infrastructure across the fast growing and competitive Indian market .

Speaking about international investment in Indian data centers, Sander and his fellow panelist discussed market entry factors and how investment will improve connectivity and services to an underserved market. They concluded that the macro trends for increased investment in digital infrastructure in India are very positive, highlighted by a number of  key factors:

• India has the 2nd largest share of the world’s internet users with 1.15 billion wireless subscribers and more than 500 million internet subscribers (which at circa 35% is still below the worldwide average of >50%)
• The e-commerce sector is booming and expected to grow in excess of USD200 billion by 2026 (Walmart/Flipkart, Amazon, Alibaba, etc.). Hyperscalers (Google, AWS, MSFT) and Government are driving further demand.
• The government is targeting a USD5tn economy by 2025 (the 4th largest in the world) and the digital economy is one key pillar in its bid to achieve this milestone. Policy work has already been done on data localization, digital India and data center park developments. This will all lead to further data center demand.

On the back of this explosive demand, India’s data center market has doubled since 2013, and this is likely to continue in the coming four years. Existing participants, including international players like NTT/Netmagix and STT Telemedia, have all announced new capacity at both existing and new sites. Investment from both international infrastructure investors (through their data center platforms, e.g. Bain, Warburg Pincus and I-squared) as well as by local promotors/conglomerates in JVs with international operators (such as Adani Group with Digital Realty and Jio with Microsoft) has also increased. Lastly, there are greenfield projects like Rackbank that target the pure hyperscale market.

Potential challenges that investors could face when investing in India’s digital infrastructure include:  1. Power supply (grid availability in some areas is much better that others) and potential renewable alternatives, 2. fiber availability and connectivity, 3. long lead times to secure land. Despite these challenges and supply shortage in general, pricing remains very competitive in India.

Inbound investment and M&A into the Indian data center sector will continue to be active. On the back of our regional track record raising capital for (greenfield) projects in Australia, Singapore & India, Natixis continues to play an active role in this market.