Industry Research by: EsgCiti Research Team led by Ms. Madhu Jha, Director & COO, EsgCiti Green Pvt. Ltd.
India is progressing on a digital trajectory, and at the core of this transition lies the data centre industry. Over the past decade, this sector has attracted investments estimated at US$6.5 billion (IEEFA 2024). By July 2025, India has 153 data centres, with a collective capacity of 1,263 MW, primarily located in five key metropolitan areas: Mumbai (61), Hyderabad (33), Delhi NCR (31), Bangalore (31), and Chennai (30).
By 2026, India’s data center capacity is projected to increase by 66%, adding an estimated 604 MW in two years to reach a total of 1,521 MW (india-briefing.com 2024). This digital infrastructure is expected to double its current footprint, expanding from 1.15 GW in 2024 to 2.1 GW by 2027, a substantial expansion requiring an investment of ₹40,000-45,000 crore (ICRA 2024). Mumbai, contributing 35% of this national growth, indicates its evolving role as a digital hub in Asia (Yahoo Finance 2024).
As India pursues this digitally-focused future, it faces an important decision regarding its development path. The Ministry of Electronics and Information Technology (MeitY) has recognized this, renewing discussions on the National Data Centre Policy, a framework initially proposed in 2020. This policy, along with measures such as simplifying approvals, providing single-window permissions, encouraging domestic manufacturing, and offering incentives, are relevant for supporting the industry’s expansion.
However, realizing the full promise of this digital development extends beyond merely laying more fiber optics or installing additional server racks. It necessitates a more comprehensive approach: a firm commitment from the government, policymakers, and all related sectors to integrate sustainability and environmental considerations into every operational decision.
Preserving Resources To Power Growth
The rapid expansion of the data centre industry presents considerable environmental challenges, particularly concerning its energy and water demands. These large facilities are notably energy and water-intensive. Projections indicate they will consume 3% of India’s electricity by 2030, a substantial increase from less than 1% today. This surge is partly driven by the growing requirements of AI workloads, with cloud providers having already pre-booked 800 MW of power for this infrastructure (IEEFA 2024; JLL 2024). A single AI chip can demand between 300-700W, meaning a cluster of 10,000 units can require over 7 MW, a scale that demands careful resource planning. Furthermore, cooling this hardware is a highly water-intensive process, projected to require hundreds of billions of litres of water annually.
Beyond these immediate concerns, a growing dependence on energy imports could render data centres vulnerable to fluctuating pricing and increased costs, particularly amid evolving global tensions and trade dynamics. This situation could diminish the perceived stability of natural gas as an energy source. As a recent IEEFA report underscored, “Of all commodities, liquefied natural gas (LNG) is most sensitive to geopolitical disturbances, with conflict magnifying the market’s inherent volatility” (IEEFA 2024).
Managing the Grid
Technological advancements offer a further potent mechanism for progress. Data centre designers, for example, typically evaluate air and evaporative cooling systems based on specific local conditions, assessing climate patterns, power availability, and importantly, water stress. While evaporative cooling can conserve energy in grids with limited power, it is generally renounced in water-scarce regions to preserve water availability for community needs (Equinix).
Innovations, including liquid cooling and AI-driven energy management, possess the capability to reduce water and electricity consumption by 30-40% (Turner & Townsend 2024). These methods confer environmental benefits and are 25-30% less costly to operate, demonstrating the alignment of sustainability with profitability (Deloitte 2024). Contemporary facilities frequently achieve an efficient Power Usage Effectiveness (PUE) of 1.3-1.5, indicative of effective energy management. Moreover, implementing AI-driven energy management systems can optimize operations in real-time, thereby minimizing waste and anticipating maintenance requirements before they escalate and affect the local communities.
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Policy and Principles
The transition to a sustainable data centre ecosystem simply cannot materialize in a vacuum. The Indian government has already made a big move by granting the sector ‘infrastructure status.’ This designation streamlines access to long-term capital, underscoring the sector’s pivotal role in national economic development. Moreover, state-level policies provide additional impetus through incentives for integrating environmentally conscious technologies. The government’s Viability Gap Funding (VGF) scheme may also cover up to 30% of capital expenditure for standalone Battery Energy Storage Systems (BESS) projects (IEEFA 2024).
Beyond regulatory frameworks, a noticeable move towards Environmental, Social, and Governance (ESG) principles is emerging within India’s large and medium sized businesses. Environmentally sound data centres frequently exhibit 25-30% reduced operating costs due to enhanced energy efficiency, fostering their resilience and sustained profitability (Data Center Dynamics 2024). This adherence to ESG also involves greater transparency regarding water consumption in their disclosures, as stakeholders increasingly require insight into resource stewardship by these entities. By embracing circular economy principles for e-waste management, this new industry can increasingly align its growth with an expanded understanding of corporate accountability.
Charting a Sustainable Digital Future
The India Data Centre Industry is now valued at an estimated $10 billion, yielding a substantial $1.2 billion in revenue in the recent financial year (2023-24) (Anarock). This represents a notable contribution to the national economy. India’s data centre development presents a considerable prospect to serve as a global model, provided sustainability remains central to its trajectory. This ambition calls for a three-pronged strategy. First, a deliberate and accelerated transition to renewable energy sources is essential, leveraging India’s significant solar and wind potential to power this digital expansion. Second, the widespread adoption of advanced, water and energy-efficient technologies becomes imperative, ensuring that growth does not disproportionately strain vital natural resources. Finally, establishing a supportive and transparent regulatory ecosystem that consistently incentivizes green practices and fosters accountability across the industry is fundamental.
By integrating these core elements, India can not only secure its digital future but also present a demonstrable approach for responsible data centre industrial growth that is replicable for other developing economies.
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