$100 billion data centre boom tests resource limits

From Mukesh Ambani's Reliance Industries to the Adani group and the Tatas, India's largest business houses are jumping in to invest in data centres as usage of data in the world's most populous country soars.

But there are concerns that inadequate electricity and water supplies will delay and disrupt the projects. Will a paucity of resources short-circuit the investment boom? That's our focus this week. You can share your views by clicking on this link.

And stronger-than-expected growth in the July-September quarter leaves the central bank facing a dilemma over its next rate move. Scroll down for more on that.

Big conglomerates are diving into India's data centre boom.

India hosts 20% of the world's data but has less than 6% of global data centre capacity, according to ratings agency ICRA, making investments in the sector an attractive bet.

The Adani group will invest $5 billion in Alphabet-owned Google's India AI data centre project, an executive said last week. That's a third of the total investment planned in the five-year project to set-up a 1 GW centre in the southern state of Andhra Pradesh.

Reliance is planning a similar-sized facility in the same state in partnership with Brookfield Corporation and Digital Realty with an estimated investment of $11 billion.

IT firm TCS, part of the Tata Group, has partnered with private equity firm TPG to invest $2 billion in equity to form a joint venture aimed at developing AI data centres.

Sam Altman's OpenAI is also planning a data centre in India with at least a 1 GW capacity, Bloomberg reported, but details are still awaited.

Having been on the periphery of the artificial intelligence boom so far due to the absence of any significant chip manufacturing capability, data centres represent India's best chance of making a mark in AI on the global stage. 

India currently has 1.4 GW of operational data centre capacity, with 1.4 GW under-construction and another approximately 5 GW in the planning stage, according to an October 27 report from Macquarie Research, which estimates the capital expenditure on this build-out at $30 billion-$45 billion, excluding the cost of servers.

Overall investment in the sector, estimated at $60 billion between 2019 and 2024, is set to hit $100 billion by 2027, according to consultancy Deloitte.

But constraints on resources - from power to water - are prompting analysts to question the sustainability of the boom.

A majority of the data centre capacity is currently being built in cities where resources are already stretched, a key risk cited by analysts.

Mumbai - India's financial capital - hosts 40% of the country's operational data centre capacity, followed by Chennai which has 20%. Both cities are landing ports for undersea cables, which gives them a leg-up in hosting large data centres.

But competition is hotting up with states such as Andhra Pradesh, ruled by a key ally of Prime Minister Narendra Modi, drawing recent large data center projects, including Google's. 

Read this deep dive on the state's investment push.

The rapid growth of data centers in India will result in their share of electricity demand more than tripling to about 2.6% in 2030 from 0.8% in 2024, said S&P Global Commodity Insights in a September report.

India's power demand over this period is expected to grow at a 5.3% annual average rate but demand from data centers will grow at a much faster clip of 28%, S&P said.

Water, already a constraint for Indian households and businesses, will also be a concern.

"With high water demand from data centers for cooling needs estimated at about 25.5 million liters per year for a 1 MW load, according to data from the Uptime Institute, the computing infrastructure in these cities may face operational disruption risks without government intervention," S&P said.

India's average annual water availability per capita is likely to drop to 1,367 cubic meters by 2031 from an already-low 1,486 cubic meters in 2021, Moody's Ratings had said in a report last year, adding this is  detrimental to the credit health of the economy and key sectors that heavily consume water.

Resource constraints have previously derailed large investments including in mega power projects, which in the early 2000s failed because of inadequate gas and delayed permissions.

The Indian economy grew at a faster-than-expected clip of 8.2% in the July-September quarter, driven by private spending and a front-loading of exports ahead of high U.S. tariffs which kicked in at the end of August.

But a resilient economy will likely give the central bank reason to think hard when it meets this week to set interest rates.

Low inflation had prompted analysts to call for a resumption of rate cuts, but some now say the economy does not need additional monetary policy support.

"For a forward looking central bank, as important (as) it is to look through backward encouraging data - both low inflation and solid growth - the GDP print today can't be ignored, in our view," said Aastha Gudwani, chief India economist at Barclays, flipping her call for a rate cut on Friday to a status quo.

Read here for a preview on the upcoming policy decision. 

India's telecoms ministry has privately asked smartphone makers to preload all new devices with a state-owned cyber security app that cannot be deleted, Reuters reported.

The move has sparked concern among privacy advocates and opposition political parties about user consent.

Read here for the details.

Indian trade unions held protests over the past week against four new labour codes, which the government says are the biggest overhaul of workplace rules in decades.

No widescale disruption to factories was reported, suggesting the new labour laws will not be rolled back.

If you missed the previous India File edition on the labour reforms, you can catch up here.

This newsletter was edited by Muralikumar Anantharaman, Editor, Global News Desk, in Singapore.

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