By Pinkesh Kotecha, CMD, Ishan Technologies
India’s data centre story is often told as a triumph of scale. And by the numbers, it is hard to argue otherwise. Total installed capacity crossed the 1,700 MW mark in 2025, with 440 MW of new supply added in a single year, a 160% surge over 2024. A further 500 MW is projected for 2026, pushing year-on-year growth to roughly 30%.
The aforementioned numbers show that India has been witnessing impressive digital development due to its embrace of cloud computing, artificial intelligence, and digitalisation, among others. However, the above figures also demonstrate a structural imbalance. Over 90% of India’s established data centres have been concentrated in tier-1 cities, with as much as 50% of its capacity based in Mumbai.
Concentration has been strategically important in the earlier stages of this infrastructure, as it had to be located near enterprise centres as well as internationally. However, as capacity continues to grow, metro regions are under increasing pressure in terms of land and power supply, among other issues.
There is a need for change at this hour. A change wherein the next phase of growth is not reliant on the same infrastructural geography.
Digital Demand Is on The Rise Where Infrastructure Is Limited
The best reason for decentralisation can be derived from regions where demand for digital is growing the most. According to the latest figures, there are about 969 million Internet users in India, of which about 408 million reside in rural locations, while the number of OTT users increased by 14 per cent to 547.3 million in 2024.
The statistics indicate the fast pace of digitisation and growth in consumption in smaller Indian towns. However, although demand is getting decentralised, infrastructure is not. It leads to some clear performance issues because when users in new markets access services hosted in metropolitan hubs, latency increases, making services unresponsive.
This was not always the case before, but with the increasing importance of artificial intelligence, real-time data streaming, Internet of Things (IoT), and payments, latency is becoming a performance parameter.
Tier-2 Cities – The New Growth Corridors
This is where the emergence of edge computing makes its presence felt.
According to JLL, Indian edge data centre capacity will more than double from 80 MW to 100 MW currently to 160 MW to 180 MW in 2028.
This growth represents a transformational change whereby computing capacities are being deployed not in metro hubs alone but close to centres of regional demand. This is especially significant when it comes to latency-sensitive applications like AI inference, video streaming, and IoT. In other words, Tier 2 cities are no longer secondary infrastructure hubs; they are emerging as critical parts of India’s infrastructure ecosystem.
Essentially, it is becoming too expensive to keep building data centres only in metro cities, so companies are now starting to expand into Tier 2 cities where land and infrastructure costs are lower.
The above difference is quite significant for long-term planning of capacity expansion. As the cost of setting up infrastructure increases due to increasing capital intensity for AI and Hyperscale computing, lower prices of land in Tier 2 cities would lead to savings that could be utilised elsewhere for crucial infrastructure investments.
What Factor Decides Whether Decentralisation Succeeds?
Most importantly, decentralisation alone does not in any way guarantee efficiency.
For Tier 2 cities to become suitable hosts for the next wave of data centres, they require the existence of fibre optic networks with adequate bandwidth capacity and latency, as well as interconnection with enterprise and cloud ecosystems. Such considerations have already been taken up by the Indian Government through its BharatNet scheme. More than 2 lakh gram panchayats have been connected using optical fibres.
The above infrastructure framework becomes crucial in view of the fact that data centres derive their relevance not from mere locations, but from their ability to connect within the overall digital ecosystem. Failing to achieve such connectivity may mean having fragmented capacity, rather than decentralised capacity.
The future evolution of data centres, therefore, will not only involve infrastructure expansion across various regions but also networked integration with the wider enterprise and cloud ecosystem of India.
The Real Opportunity Lies in Integrated Infrastructure
The upcoming wave of growth for data centres in India will have to be judged not only on the quantity of new facilities but also on the efficiency of their integration with each other. Tier 2 cities can help bolster the digital backbone of India by providing improved latency, creating redundancy and decreasing reliance on metro areas, provided that they have strong connectivity, scalable infrastructure, power availability, and favourable policy frameworks. The convergence of data centres, cloud technology and networks would be key to achieving seamless information flows.