Why Are Data Centres in India Moving to Tier 2, 3 and 4 Cities?
Of late, several giants, including AdaniConnex, Reliance, Sify, Atlassian, Yotta, AWS, and Lenovo, have announced substantial investments in data centres across India. With the growth of India’s data centre market, the capacity is projected to surpass 1,300 MW by the end of 2024, a notable increase from 1,048 MW at the end of 2023 and 880 MW as of June 2023. However, the concentration of data centres remains prominent in seven cities like Mumbai-Navi Mumbai, Chennai, Delhi-NCR, Bengaluru, Pune, Hyderabad, and Kolkata. These cities accounted for a 35% year-on-year growth, reaching 884 MW capacity and spanning over 13 million sqft by the end of 2023. Mumbai-Navi Mumbai leads with a 52% share of the total data centre capacity, followed by Chennai (16%), Delhi-NCR (11%), Bengaluru (9%), Pune (7%), Hyderabad (4%), and Kolkata (1%). Despite the concentration in the top-four locations, the emergence of co-location and edge computing facilities is expected to shift the dynamics, with edge data centres expanding into Tier 2 cities in 2024. Overall, the data centre occupancy level in India stood at about 75-80% in 2023 and is likely to improve by the end of 2024. This expansion is driven by the need for edge computing and the desire to be closer to customers in these areas, offering a faster response time and lower latency for time-sensitive applications. Who’s Moving and Where? Nxtra and CtrlS are among the leading data centre players actively expanding their edge computing infrastructure in Tier 2 and 3 cities to meet the burgeoning demand. Nxtra, Airtel’s data centre arm, operates 120 edge data centres in 65 cities, like Bhopal, Nagpur, Cuttack, Ranchi, Patna, Raipur, Kanpur, Madurai, and Leh. These facilities have capacities ranging from 1 to 5 megawatts, and the company plans to expand its edge data centre infrastructure further. CtrlS, on the other hand, envisions creating over 20 edge data centres across Tier 2 and Tier 3 cities in the coming years. It currently has edge data centres in Lucknow and Patna. It further plans to expand its capacity this year and open a new facility in Kolkata. Yotta Data Services, backed by the Hiranandani Group, is expanding its operations in Greater Noida and Guwahati, tapping into the burgeoning demand for edge facilities in Tier 2 markets. These operations are expected to be completed and operational by the end of 2024. With Yotta-D1 nearing full capacity at 85%, the company is moving forward with the construction of its D2 and D3 facilities STT GDC India, a subsidiary of Singapore’s STT GDC, has announced its plans to invest $1 billion in the next 3-4 years to expand its data centre footprint across India, including Tier 2 cities. The company aims to build at least two data centres in Tier 2 cities this year and about eight in the next three years. These expansions are part of a broader trend towards decentralising data centre infrastructure to better serve a distributed user base across India. The move towards Tier 2, 3, and 4 cities is expected to support the low-latency requirements of 5G and support AI applications that require real-time processing and analysis for faster decision-making. Benefits of This Move Building data centres in Tier 2 and Tier 3 cities in India offers several advantages over their establishment in larger cities. Positioning data centres closer to users in these cities can significantly reduce latency, enhancing the digital experience for services that demand quick data processing. These could be for online gaming, streaming, and financial transactions. This proximity is crucial for the emerging needs driven by 5G, OTT streaming, online gaming, and AI technologies. Secondly, Tier 2 and Tier 3 cities may provide more opportunities for constructing green data centres. More available space and less stringent regulations can facilitate the adoption of sustainable practices, including using renewable energy sources and advanced cooling technologies. This aligns with the broader industry trend towards sustainability. Furthermore, these cities represent untapped markets with considerable growth potential. As the digital economy expands, the demand for digital services in these areas increases, offering data centre operators new markets to explore and support regional development. This expansion can also drive improvements in connectivity infrastructure and lead to the creation of modern office spaces and tech parks, attracting more business and talent to these regions. Additionally, both central and state governments in India have recognised the potential of the data centre industry and have introduced policies and incentives to support its growth. These include draft data centre policies, infrastructure status for the industry, and the inclusion of data centres in the harmonised list of infrastructure. States like Karnataka, Tamil Nadu, Uttar Pradesh, Odisha, Telangana, and West Bengal have announced data centre policies to facilitate investments in the last two years. Conclusively, developing data centres in Tier 2 and Tier 3 cities contributes to more balanced regional development, creates job opportunities, and supports government initiatives to digitise the nation’s economy. It also meets the country’s growing digital needs by decentralising the data centre industry to serve a distributed user base better. Delayed, But Rewarding In conversation with AIM, industry luminaries like Saandeep Dandekarr and Rachit Mohan, emphasised that while there is a definite trend towards this shift, it will take time to mature, estimating about two to five years for a significant footprint in Tier 2 and 3 cities. “It will take time to mature, but that’s the way forward for sure,” Dandekarr said, while Mohan was of the opinion that the move, “Will take a couple of years to mature.” This timeline, he said, accounts for the various stages involved, from acquiring land to designing, constructing, and commissioning data centres, considering the current infrastructure penetration in these areas. Dandekarr highlighted that cities like Hyderabad and Pune, previously considered Tier 2, are already witnessing the emergence of data centres, driven by universal demand for services such as OTT and gaming. He also reiterated the role of incentives provided to the data centre industry and other sectors, in determining the location of these new facilities. The move would also add a bunch of jobs, which Dandekarr categorised as the construction phase, which would see a temporary spike in employment, and the operational phase, promising more sustainable job opportunities, albeit with a smaller workforce due to advancements in automation and AI. “So, unlike say in the ITES industry, in a three lakh square feet data centre, instead of 4,000 people, we will have maybe 200 to 250 people actually in the operations,” he elaborated. He also discussed the impact of AI on automating processes within data centres, moving from a reactive to a predictive approach to enhance efficiency and reduce the workforce. “So, right from security access, to let’s say, temperature and battery maintenance, everything is becoming predictive from reaction or response base to predictive, right? And that is where AI is coming,” he mentioned Conclusively, he opined that there will also be indirect job creation through the vendor ecosystem required for maintenance and service support, indicating a broader impact on employment in the regions hosting new data centres. View all stories Top Earthquake Prediction Tools To Watch in 2025 QS World University Rankings 2026: Top 10 Indian Universities Meet Dr. M C Mary Kom at The Rising 2025 – Conference | Bengaluru Top 10 Indian Companies with Highest Women Workforce 2025 DeepSeek Vs ChatGPT – Why World is Falling for this Chinese AI Model
However, industry luminaries like Rachit Mohan and Saandeep Dandekarr believe that it will take 2 to 5 years to mature.
However, industry luminaries like Rachit Mohan and Saandeep Dandekarr believe that it will take 2 to 5 years to mature.
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["Go", "ChatGPT", "AWS", "AI", "Git", "GAN", "GPT", "Aim", "edge computing", "R"]
["AI", "ChatGPT", "Aim", "AWS", "edge computing", "R", "Go", "Git", "GPT", "GAN"]
Shyam is a tech journalist with expertise in policy and politics, and exhibits a fervent interest in scrutinising the convergence of AI and analytics in society. In his leisure time, he indulges in anime binges and mountain hikes.