India’s data centre ambitions will have to go through Malaysia, Japan

“…expect emerging markets in Asia-Pacific to outpace established markets in capacity growth over the next three to five years,” the note said. It comes when the Indian government is looking to subsidise setting up of data centres to capitalise on the AI boom, and make access to computing capacity easier for smaller entities like start-ups and research institutions. Computing capacity, or compute, is among the most important elements of building a large AI system, apart from algorithmic innovation and data sets. It is also one of the most difficult elements to procure for smaller businesses looking to train and build such AI systems, given the high costs.

How India is placed

The note said that emerging markets in Asia-Pacific are increasingly an attractive alternative to developed markets for three reasons – lower costs to develop and operate data centres; significant growth in data demand due to digitalisation and favourable demographics; and government support for the building of local data centres as part of their push for data sovereignty.

As per the note, India currently has a leased data centre capacity of 1-3 GW, which is the highest compared to other emerging markets like Indonesia, Malaysia, Philippines, Thailand and Vietnam. However, between 2023-28, the data centre business in Malaysia could see a higher growth than in India, the report estimates – although stricter data sovereignty requirements in the Southeast Asian country compared to India, could give the latter an edge.

India is already home to data centres set up by big tech companies like Google, Microsoft, and Amazon.

Competition

India, however, could face competition from both emerging markets and developed economies in attracting more data centres. Johor Bahru, in Malaysia, for example, has become a hot landing spot for new data centres, the note said. The Johor Bahru sites can be a cheaper alternative to Singapore for regional data traffic, with more affordable land and power. The government is supporting the data centre developments by building power and connectivity infrastructure.

“Johor Bahru has a project pipeline of 1.67 GW of total IT load capacity, which is markedly higher than its current capacity of 231 megawatts (MW) as of the first half of 2024, according to property broker Cushman and Wakefield. We see a risk of transitional oversupply when such capacity enters the market,” the note said.

Operators with data centres mainly in established markets face lower operational risk than equivalent facilities in emerging Asia-Pacific. The former benefit from lower country risks, which translate into a relatively stable policy environment, a well-established power and connectivity infrastructure, and a more digitised economy, the report said.

For example, Japan is offering subsidies to decentralise data-centre development, such that new centres will be built away from big cities like Tokyo and Osaka. Data centres in tier-two or tier-three cities typically have lower land and construction costs compared with tier-one cities.

IndiaAI Mission

The Indian government has finalised a tender document to procure graphics processing units (GPUs) as part of its ambitious IndiaAI Mission and offer computing capacity to Indian start-ups, researchers, public sector agencies and other entities approved by the government.

The move is part of the Rs 10,370 crore IndiaAI Mission to establish a computing capacity of more than 10,000 GPUs and also help develop foundational models with a capacity of more than 100 billion parameters trained on datasets covering major Indian languages for priority sectors like healthcare, agriculture, and governance. The idea is that if such an infrastructure exists in the country, start-ups could plug into it for developing AI systems.

Of India’s Rs 10,370 crore plan, the implementation of computing infrastructure will be done through a public-private partnership model with 50 per cent viability gap funding. If the compute prices come down, the private entity will have to add more compute capacity within the same budgeted amount to meet increased demand. Of the total outlay, Rs 4,564 crore has been earmarked for building computing infrastructure.