Bengaluru, the IT hub of Karnataka and the Silicon Valley of India, has one of the largest data centre infrastructures in the country after Mumbai and Chennai. The data centre market in Bengaluru is projected to grow from 203.17 MW in 2025 to 398.22 MW by 2031, with an 11.87% CAGR.
But as demand for AI-ready compute grows, and with new pressures on sustainability, the critical question of expansion beyond Bengaluru is surfacing. Can Karnataka expand its data centre footprint into emerging hubs such as Mangaluru, Hubballi, and Mysuru?
The answer lies at the intersection of energy and water security, ecosystem building, and the rise of edge computing. Policymakers, investors, and industry leaders are finally converging around this theme.
Energy and Water Security: The Critical Bottleneck
Speaking at the Mangaluru Technovanza on September 24, Karnataka’s IT/BT minister Priyank Kharge highlighted the dual challenges of powering and sustaining future-ready data centres: an uninterrupted energy supply and complete access to water. “So, if I’m able to make industries water secure and energy secure, nothing can stop Mangaluru from becoming the data centre capital,” he said.
Kharge said the state is already working with the Department of Energy on a plan to earmark dedicated green energy for AI and data centres. “We will come up with a blueprint by the next budget session,” he noted.
Unlike traditional IT parks, data centres require vast and reliable supplies of water for cooling infrastructure. Karnataka’s coastal belt, with its stronger aquifers and river networks, provides a relative advantage.
Yet, the sustainability question lingers: can such hubs deliver scalable capacity without repeating the stress Bengaluru faces?
Tier-2, Tier-3 Cities Need Ecosystems
For AI and cloud providers, latency and proximity to users are becoming as important as raw capacity.
Rahul Takkallapally, co-founder of Bharat Cloud, explained: Latency increases when data from a farm in Mangaluru is generated through a drone and fed to a data centre 500-600km away. “If the data is local, you can use edge data centres instead. Today, compute needs to be as close as possible,” he said.
Edge data centres, often in the 1-2 MW range, allow local businesses to access cloud services efficiently while reducing strain on national backbones, Takkallapally highlighted. They also underpin future technologies such as 5G rollouts, IoT in agriculture, and AI-enabled manufacturing.
“Data centres are also needed for launching 5G. All internet service providers require data centres,” he added.
Edge facilities also unlock local economic potential. “Local businesses can adopt technology, explore bigger markets, go international, and grow confidently. Government and private sectors must bring data centres and tech companies close to tier-2 and tier-3 cities,” Takkallapally said.
A data centre is more than just a warehouse of servers. “We must also build an ecosystem around data centres, education, awareness, and support. A sustainable ecosystem directly impacts economic growth,” emphasised Takkallapally.
This sentiment is echoed across stakeholders: unless local SMEs, ISPs, and public agencies are drawn into the ecosystem, demand for tier-2 data centres will remain patchy. Currently, hyperscalers and large financial institutions dominate consumption, making smaller facilities less attractive to investors.
Amin Habibi, co-founder & COO at VergeCloud, stressed on the need for a demand-driven architecture. Coming up with edge servers instead of building new data centres is the way forward, he said, adding, “having it more centralised is not the way consumers are expecting it to be.”
Policy, Incentives and Challenges
On the supply side, Karnataka has a strong foundation. Vinod Subramanian, vice-president of the technology sector at Invest India, said at the Mangaluru Technovanza that Karnataka was one of the first states to come up with a very comprehensive data centre policy in 2022, which has a bunch of extremely competitive incentives. “Some of which [incentives] apply only if the data centres are set up beyond Bangalore. So we have capital subsidy, land subsidy, breaks on taxes, and then power incentives,” he added.
Subramanian pointed out that while Bengaluru accounts for about 10% of India’s data centre capacity, coastal and tier-2 cities like Mangaluru could represent the next wave of growth. Subramanian’s colleague Soumil Gupta, who manages the data centre advisory at Invest India, added that India has about less than 2% of the global data centre capacity currently. “We have the ability to scale this to 20%. That’s where our focus is.”
Despite the enthusiasm, infrastructure gaps continue to deter investment. VergeCloud’s Habibi was candid in his observation: “We don’t have good connectivity in tier-3 cities, right? That’s where providers should come in to bring that traffic and infrastructure for us to start building our own servers and pop sites.”
Takkallapally said that barriers to cloud adoption for non-metro clients include unstable internet connectivity and a lack of awareness among SMEs regarding cybersecurity, which is often recognised only after crises like ransomware attacks. Additionally, hyperscalers favour large urban centres with guaranteed demand, leaving smaller towns without key cloud service providers.
AI at the Edge: A New Frontier
One promising development is the convergence of AI with edge computing. VergeCloud is experimenting with ‘AI at the edge and GPU at the edge’ architectures. “Instead of giving the computation power or GPU power from a data centre, we will provide it from the closest point to the consumer. The response time for each request to any large language model will come down dramatically to, let’s say, below 30 milliseconds,” explained Habibi.
This approach could make edge centres indispensable for industries like healthtech, agritech, and immersive entertainment, where milliseconds define user experience.
Among Karnataka’s emerging hubs, Mangaluru is receiving the most attention. It offers strong water resources, a coastline suited for cable landing stations, and a higher-than-average GDP per capita.
Policymakers see Mangaluru not just as a data centre site but as a digital gateway for southern India.
The blueprint for industrial-specific green energy, due by the next budget session, may prove to be the single most decisive enabler for this transition. Combined with incentives, policy frameworks, and a renewed push for edge computing, Karnataka’s tier-2 cities could finally attract the infrastructure that matches their economic potential.
The post Beyond Bengaluru: Karnataka’s Data Centre Push Towards Tier-2 Hubs appeared first on Analytics India Magazine.
