According to Crisil Ratings, as businesses expand their investments in cloud storage, digitalization will drive India's data center capacity to more than double to 2-2.3 GW by 2026–2027.

The report said that the growing use of Generative Artificial Intelligence (GenAI) will drive the need over the medium term.

It stated that a larger percentage of debt funding would support the additional capital spending to meet the robust demand, leading to a mild rise in debt levels.

Data centers serve the need for computer and storage infrastructure as organizations quickly move to digital platforms, such as the cloud, a trend that has intensified since the COVID-19 outbreak.

According to the report, the second significant cause is the rise in internet usage, which includes social media, over-the-top (OTT) platforms, and digital payments, as a result of easier access to high-speed data.

Notably, mobile data traffic increased at a compound annual growth rate (CAGR) of 25 percent over the previous five fiscal years. At the end of fiscal 2024, it was 24 GB per month, and by FY26, it is predicted to reach 33–35 GB.

The rapid development of GenAI, which demands more processing power and lower latency than traditional cloud computing activities, is expected to boost data center demand in India in addition to the continuous need, it was stated.

Over the next three fiscal years, an investment of Rs 55,000–65,000 crore is needed to accommodate the increasing demand for data centers. This investment would mostly go towards land and building, power equipment, and cooling solutions.

"Data center operators typically build infrastructure - land and building, which account for 25-30 percent of overall capex - with the expectation of future tie-ups," Crisil Ratings Senior Director and Deputy Chief Ratings Officer Manish Gupta.