AI Boom to Drive Massive Expansion in India’s Data Centre Capacity by FY31

New Delhi — India’s data centre industry is poised for explosive growth, with total capacity expected to jump nearly six-fold—from 1.8 GW currently to around 10.5 GW by FY2031—driven by the rapid adoption of Artificial Intelligence and evolving data localisation requirements, according to a report by Morgan Stanley.

The report estimates that AI-related workloads alone could account for nearly 6.8 GW of the projected capacity. Alongside this, increasing demand for low-latency data processing, stricter localisation norms, and higher computational intensity are emerging as key growth drivers.

It also points to shifting global geopolitics and India’s regulatory push as catalysts for a long-term investment cycle in the sector. The total capital expenditure pipeline tied to new data centre capacity is projected to reach around $60 billion, covering land acquisition, power infrastructure, cooling systems, and networking equipment.

A significant portion of this investment—over $20 billion—is expected to flow into the power ecosystem, as data centres require large and reliable energy supplies. Operators are increasingly turning toward renewable energy sources and storage solutions to meet sustainability goals and operational needs.

Policy initiatives such as granting infrastructure status to data centres, enforcing data localisation norms, and offering fiscal incentives are helping accelerate investments and attract global hyperscale companies.

The report highlights that expanding domestic data storage capacity will strengthen India’s digital sovereignty, reduce reliance on overseas infrastructure, and position the country as a regional hub for cloud and digital services. It also expects foreign investment inflows to increase as global technology firms expand their presence in India.

However, the report cautions that challenges remain, particularly in securing consistent and cost-effective power and reducing dependence on imported high-end computing hardware.

Looking ahead, Morgan Stanley projects that about 60 per cent of India’s incremental capital expenditure through 2030 will be directed toward energy transition, data centres, and defence. Overall, the country could see cumulative investments of around $800 billion in these sectors over the next five years, potentially pushing the investment rate to 37.5 per cent of GDP by FY2030.

With inputs from  IANS