Data centre growth in India is skyrocketing with capacity in the top seven cities expanding more than fourfold in just six to seven years—reaching 1,263 megawatts as of April. But a maze of regulatory requirements that are not consistent across states pose a challenge to the developers setting up these resources.
According to a survey by Nasscom Insights, rapid digitalisation is fuelling this sharp rise along with the nationwide rollout of 5G, growing adoption of cloud and AI technologies, improved subsea cable infrastructure, and supportive state-level policies.
Fragmented Regulations
Obtaining statutory approvals can mean navigating 50 to 60 different clearance processes, many of which are inconsistent. “There needs to be a better way to handle this,” Seema Ambastha, CEO at L&T Datacenter and Cloud Services told AIM . “A shorter gestation period helps you start monetising faster. This itself is a big incentive—it’s not just about cash incentives. The ease of doing the build is key. A standardised approach would help so that you don’t have to keep referring to different manuals or policies every time you go to a new state.”
Furthermore, energy costs make up a bigger portion of operational expenses, which are complicated by varying power policies across the states.
“This is a nightmare in our country. Some states have a policy for green energy, some don’t. And in some, it’s just not a priority,” Ambastha said. “For the country’s sake, there must be a green energy policy. I don’t see why this should be missing in some states. Power is one of the largest components of your OPEX. A uniform power policy would help significantly.”
Adding to this concern, Vipul Kumar, VP, edge and network, CtrlS Datacenters Ltd, told AIM, “Every state government has a different green power strategy and policy. It’s not like a unique policy which can be applied to all the states in India. You have to, you know, kind of adapt and align to those state government policies as well.”
As digital services and AI-driven demand increase, tier 2 cities like Vizag, Coimbatore, and Jaipur are gaining attention for edge computing and regional storage. “These regions offer cost advantages, growing infrastructure, and access to talent,” said Nitika Goel, managing partner and CMO, Zinnov.
However, regulatory clarity remains a key differentiator. Global players like AWS, Microsoft, and Equinix continue to invest in hubs like Mumbai and Chennai, where policy support and connectivity are stronger.
What Operators Are Up Against
India’s fragmented legal and regulatory environment adds to the complexity. The absence of uniform definitions, state-specific approval processes, and ineffective single-window clearances result in high compliance costs and delayed project execution.
Adding to this Tanvi Rai, senior analyst, Everest Group, said that India’s data centre ecosystem is governed by an inconsistent patchwork of state-level policies. States like Tamil Nadu, Uttar Pradesh, Telangana, West Bengal, and Odisha offer tailored incentives, including exemptions from electricity duty, capital subsidies, and classification as essential services.
“However, the scope and effectiveness of these policies vary significantly. Uttar Pradesh, for example, offers transmission and wheeling charge exemptions and has designated dual-grid supply as standard. In contrast, Tamil Nadu’s emphasis is more on land subsidies and MSME promotion,” Rai added.
This variation, while reflecting federal flexibility, also introduces inefficiency.
“Each state effectively functions as a separate regulatory jurisdiction, requiring bespoke legal strategies and localised consultants, adding substantial overhead. This results in higher capital expenditure, delayed market entry, and increased risk exposure,” said an industry veteran who is an expert in legal policy and compliances, seeking anonymity.
These challenges affect not just project timelines, but location decisions. For instance, states like Maharashtra and Haryana that offer faster clearances and cost-effective incentives attract more data centre investments.
“More capacity is being concentrated in a few metro corridors, while pan-India scalability remains constrained,” the expert added.
The Draft National Data Centre Policy 2020, proposed by MeitY, offers a strong starting point. It recommends a single-window clearance mechanism, classification of data centres as essential services, promotion of Data Centre Economic Zones (DCEZs), and a centralised incentive structure.
Goel further added that The DPDP Act has laid the groundwork for stronger data protection and governance. But building a resilient and scalable digital infrastructure demands more—especially a coordinated effort between central and state governments.
She added that India needs a national framework that defines consistent benchmarks for data centre infrastructure, power usage, and security. A central coordination body, potentially under MeitY, could work with states to align incentives and streamline compliance.
This partnership between policy and industry needs to move from intent to impact, experts urge. “With the right frameworks in place, India can not only meet its domestic digital needs but also emerge as a trusted global data infrastructure hub.”
Infrastructure Gaps Remain
Despite having favourable policies on paper, several states lack pre-identified land parcels and basic infrastructure,like roads, electricity, and fibre connectivity, which are essential to fast-track construction.
“If a state is serious about building digital infrastructure, they should also earmark land and provide basic infrastructure. This would compress the time to value and make projects more attractive,” the expert emphasized.
With about 950 MW to 1 GW of installed capacity, India still lags behind global data centre powerhouses.
“Even if we double our per capita digital consumption, we’ll need to add 3 to 4 GW in the next 5 to 6 years. Just imagine the amount of capital needed. You’ll need land, networks, power, and execution capabilities,”Ambastha said.
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