India’s data centre market has entered a defining phase of expansion, with live IT capacity across the country’s seven primary markets surpassing 1.6 GW by the end of 2025, according to Knight Frank India’s latest report, India Data Centre Market Update 2025: Tracking Capacity, Demand and Supply Pipeline.

The sector, which has evolved from a fragmented infrastructure ecosystem into a strategic institutional asset class over the last decade, is now witnessing unprecedented momentum driven by artificial intelligence (AI), cloud adoption, enterprise digitisation and regulatory-led data localisation requirements. India added 371.5 MW of live capacity in 2025 following a substantial 361.6 MW addition in 2024, highlighting the transition toward a sustained, pipeline-led growth cycle.

Knight Frank India noted that the sector’s long-term outlook remains exceptionally robust, with committed and early-stage development pipelines exceeding 8 GW across major markets. India’s live capacity has expanded dramatically from approximately 296 MW in 2016 to over 1.6 GW in 2025, while in the five years recording a five-year CAGR of nearly 30%. Despite this rapid expansion, vacancy levels across major hubs continue to remain tight, underlining sustained demand intensity from hyperscale cloud providers and AI-focused occupiers.

Cumulative colocation lease activity reached 2.06 GW in 2025, with nearly 20% of total demand linked directly to AI-related workloads. AI-related colocation leasing alone reached 348 MW during the year, more than doubling compared with 2024, illustrating how generative AI, machine learning and GPU-intensive workloads are reshaping India’s digital infrastructure requirements. India’s colocation data centre market is witnessing a sharp transformation, with AI emerging as a key demand driver. According to the latest cumulative lease agreement trends, AI-related demand contributed nearly 492.2 MW of total leasing capacity by 2025, reflecting the rapid adoption of AI-led workloads across sectors. AI demand accelerated significantly post-2022, coinciding with the global AI boom and rising investments in digital infrastructure. India’s data centre ecosystem is benefiting from this shift as hyperscalers, technology firms, and enterprises seek scalable, low-latency infrastructure to support AI computing requirements. The sharp increase in cumulative leasing capacity — crossing 2,000 MW in 2025 — underlines the sector’s strong growth trajectory, with AI now becoming one of the fastest-growing contributors to colocation demand.

Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India said “The Indian data centre sector is no longer merely expanding — it is structurally transforming into one of the foundational pillars of the country’s digital economy. AI-led workloads, hyperscaler investments, sovereign data requirements and cloud adoption are collectively accelerating demand for high-density digital infrastructure across India. What distinguishes the current cycle is the sheer depth of the development pipeline and the strategic diversification into emerging corridors beyond traditional hubs”.

Mumbai Reinforces Leadership as India’s Largest Data Centre Hub Amid AI Boom

Mumbai retained its position as India’s largest and most mature data centre market, accounting for nearly 47% of the country’s total live capacity. The city’s live IT load reached 766.6 MW by the end of 2025 and is projected to approach 866 MW by 2027. Mumbai’s strategic importance continues to stem from its status as India’s financial capital, dense fibre ecosystem and concentration of international subsea cable landings. Navi Mumbai and Chandivali have emerged as major development corridors, attracting aggressive land banking by operators seeking to cater to hyperscale deployment timelines.

Mumbai’s committed pipeline expanded to 1,543.3 MW by Q4 2025, while the early-stage pipeline crossed 2,209 MW, reinforcing its position as the country’s primary hyperscale hub. Vacancy rates in Mumbai averaged approximately 6.7% during 2025, reflecting rapid absorption of newly commissioned supply. Demand remained heavily driven by hyperscalers and AI-led occupiers, which accounted for nearly 47% of leasing activity.

Chennai Strengthens Position as India’s Gateway to Southeast Asia Data Traffic

Chennai consolidated its position as India’s second-largest data centre market, with live capacity reaching 191.5 MW in 2025 compared with 73.2 MW in 2022. The city’s attractiveness is underpinned by competitive power tariffs, favourable state policies and its strategic role as a subsea cable connectivity hub serving Southeast Asian traffic. Chennai’s early-stage pipeline has already crossed 1,040 MW, supported by investments from major operators including Equinix, AdaniConneX and STT GDC India.

Hyderabad Rapidly Emerges as India’s AI Infrastructure Capital

Hyderabad has rapidly emerged as one of India’s most important hyperscale and AI-driven data centre destinations. Live capacity in the city more than doubled from 60.9 MW in 2022 to 151.4 MW by the end of 2025, while its combined committed and early-stage pipeline reached nearly 1.9 GW, second only to Mumbai. Telangana’s proactive policy push to position itself as a global AI infrastructure hub, combined with lower operational costs and disaster-resilient geography, has made Hyderabad increasingly attractive for hyperscale deployments.

Global cloud providers are also deepening their presence in Hyderabad. Microsoft is expected to launch its India South Central data centre region in the city in 2026, while AWS already operates three availability zones there. Oracle has also announced plans to expand its footprint in Hyderabad, reinforcing the city’s emergence as a credible hyperscale hub.

NCR Expands as Key BFSI and Public Cloud Data Centre Market

Bengaluru, Pune and NCR continue to evolve as specialised data centre markets. Bengaluru’s growth remains driven by Global Capability Centres (GCCs), R&D centres and enterprise colocation demand, with live capacity reaching 169.5 MW in 2025. Pune has strengthened its position as a cost-efficient alternative to Mumbai, with live capacity rising to 145.3 MW, while NCR’s live capacity expanded 55% between 2022 and 2025 to reach 174.5 MW, supported by the Uttar Pradesh Data Centre Policy and strong BFSI and public cloud demand.

The report further cited that the increasing decentralization of India’s data centre ecosystem, with Tier-II cities emerging as critical future infrastructure destinations. Visakhapatnam witnessed one of the largest announcements of the year, with AdaniConneX and Google partnering to develop a gigawatt-scale AI data centre campus backed by a proposed investment of nearly USD 15 billion over five years. The project also includes a new international subsea cable gateway, potentially transforming India’s eastern coastline into a major digital infrastructure corridor.

Visakhapatnam and Jamnagar Signal India’s Next Wave of AI Infrastructure Growth

AdaniConneX and Google have announced a USD 15 billion investment to build a gigawatt-scale AI data centre campus in Visakhapatnam over five years (2026-2030). Similarly, Jamnagar has emerged as a globally significant AI infrastructure destination following Reliance Industries’ proposed 3 GW AI-focused data centre campus development, which could eventually become one of the world’s largest such facilities. These developments reflect a broader shift toward geographic diversification, driven by land availability, power accessibility and the need for resilient AI-ready infrastructure ecosystems.

The implementation of India’s Digital Personal Data Protection (DPDP) Rules in November 2025 marks one of the most significant structural demand drivers for the data centre sector. The framework introduces stringent compliance obligations around data security, storage and cross-border transfers, with penalties reaching up to INR 2.5 billion for non-compliance. This regulatory shift is expected to accelerate migration of critical workloads onto Indian soil, particularly across banking, e-commerce, telecom, healthcare and government services.

Simultaneously, India’s broader “Sovereign AI” ambitions are reshaping infrastructure priorities. The central government’s deployment of 38,000 GPUs for startups, enterprises and research institutions — along with another 20,000 GPUs in the pipeline — is expected to create a substantial domestic base for AI compute demand. Operators are increasingly investing in liquid cooling systems and high-density AI-ready campuses to support this transition.

Policy support at both central and state levels continues to play a decisive role in shaping India’s data centre expansion story. The Union Budget 2026–27 introduced several strategic measures aimed at strengthening India’s position as a global hub for AI, cloud and hyperscale infrastructure. One of the most significant announcements was the extension of a tax holiday until 2047 for eligible foreign cloud service providers utilising Indian data centre infrastructure to serve global customers.

These policy tailwinds are now translating into unprecedented private capital commitments across India’s digital infrastructure ecosystem. AdaniConneX has outlined aggressive nationwide expansion plans targeting 5 GW of capacity by 2035 with investments estimated at USD 100 billion. Microsoft announced investments of USD 17.5 billion by 2029 to expand hyperscale AI infrastructure in India, while Amazon Web Services has committed investments exceeding USD 12.7 billion in Maharashtra and Telangana through 2030.

Commenting on the report findings, Viral Desai, International Partner, Senior Executive Director- Occupier Strategy & Solutions, Industrial & Logistics, Capital Markets & Retail, Knight Frank India, said, “India’s data centre growth story is increasingly becoming a tale of regional specialization. While Mumbai continues to anchor hyperscale deployments owing to its connectivity advantages, Hyderabad is emerging as a preferred AI infrastructure destination, and Chennai is strengthening its role as a strategic gateway for international data traffic from east. At the same time, Vizag has rapidly emerged as one of India’s most active greenfield data centre markets, attracting gigawatt-scale development proposals backed by government support, availability of sizeable land parcels and planned subsea cable connectivity.”

Supply Hurdles: The Gap Between Intent and Delivery

Despite strong optimism and large investment commitments, the data centre industry continues to face execution bottlenecks that are slowing the conversion of committed pipelines into operational capacity. Data centres are highly power-intensive, with global electricity consumption rising from 208 TWh in 2020 to 384 TWh in 2024, reflecting a four-year CAGR of ~17%. In India, power delivery remains the key constraint: only 8,830 ckm of transmission lines were commissioned in FY25 against a target of 15,253 ckm (42% shortfall), while 6,961 ckm had been added till December FY26 versus the annual target of 15,382 ckm. Growing grid constraints across cities are also driving states to incorporate sustainability-linked requirements into data centre development.

Permitting delays remain another major challenge, with developers often requiring up to 30 approvals across land, environmental, and security regulations, extending project timelines by several months. Water scarcity is also increasing operational complexity, as operators adopt “water-neutral” measures such as treated wastewater usage and air-cooled chillers. Globally, 37% of data centre capacity under construction or committed is located in high water-stress regions, highlighting the need for more efficient cooling technologies and sustainable site selection.

At the same time, sustainability considerations are becoming increasingly critical. With several Indian markets facing water stress concerns, operators are shifting toward water-neutral cooling strategies, including treated wastewater usage and air-cooled chillers.

India’s data centre industry is entering a once-in-a-generation infrastructure cycle. The convergence of AI-led digital transformation, hyperscale cloud expansion, sovereign data requirements and proactive policy support is rapidly elevating the country into a globally strategic digital infrastructure destination. While challenges around power availability, transmission readiness and execution timelines remain critical, the scale of capital commitments, policy momentum and demand visibility indicate that India is poised to emerge as one of the world’s most important hyperscale and AI infrastructure markets over the next decade.