Does the new draft of the 'Data Centre Policy' set the scene to bolster the sectors growth

Data Centres are an important emerging sector for India's growth. Investments in the sector have grown exponentially in the recent years. International players like Japan's NTT, Amazon, domestic players like Bharti Airtel and Adani have all come into the fray. With the new policy paper titled “Data Centre Policy” has the Government set the scene to create a strong platform of this sector's growth

Around 2 months ago, I did a quick analysis of the opportunity for data centres in India. I shared my initial views in the article for the Trendspotting column with IGB. The article highlighted that the opportunity in India, which houses 10 per cent of the world′s internet users but only 1.8 per cent of its infrastructure is immense and is only enhanced further by factors like rapid digitisation, data localisation laws, among others. Since the article was released in September 2020, encouraging announcements like Amazon′s decision to invest $2.8bn in a second data centre region near Hyderabad and Bharti Airtel's Nxtra Data's announcement that it will set up two new data centre campuses in Mumbai and Pune have kept flowing in.

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Data centre policy

Another significant development since the article is the recently released Draft Data Centre Policy by the Ministry of Electronics and Information Technology (MeitY). The policy, which was published on 5 November, was open for suggestions from stakeholders till 20 November initially. This has now been extended to the 30 November. In this piece, I will attempt to summarise the key aspects of this policy, its vision and its objectives along with some analysis on whether this policy will help take the industry forward in India.

Right at the start, the policy paper states its vision as 'Making India a Global Data Centre hub, promote investment in the sector, propel digital economy growth, enable provisioning of trusted hosting infrastructure to fulfil the growing demand of the country and facilitate state of the art service delivery to citizens.'

This ambitious vision is preceded by a 2-page background which highlights the growing relevance of the data centre industry in India. The mission of the policy paper is multi-faceted and includes:

• Building sustainable capacity

• Encouraging and incentivizing establishment and investments in data centres

• Promoting R&D in manufacturing and development of data centre related products

• Promoting domestic manufacturing

The policy then lays out a list of strategies that will enable the data centre sector in India achieve these ambitions. The first, and probably one of the most significant steps in this direction is the proposal to provide “Infrastructure Status” to this sector. This is extremely important for projects getting access to institutional credit with a reduced cost of borrowing compared to sectors without this status. Other strategies include:

• Rationalising clearances/single window clearance

• Setting up of pre-provisioned Data Centre Parks with infrastructure like road connectivity, water availability etc

• Formalising a Data Centre Incentivisation Scheme which includes incentives for using domestic IT hardware and other domestics products/services

The policy then goes on to address creation of an ecosystem around the Data Centre Sector. Areas covered in this ecosystem include clean and cost-effective electricity and robust and cost-effective connectivity. In this context, the policy further recommends declaring Data Centres as an Essential Service under “The Essential Services Maintenance Act, 1968” which will help ensure continuity of services in the events of disasters or crises. Also, as per the recommendations of this policy paper, Data Centres can also be recognised as a separate category under National Building Code. With the strategies in place and creation of ecosystem addressed, the paper recommends creation of at least 4 Data Centre Economic Zones which will be expected to house the sector's ecosystem and channel the above mentioned benefits in a structured and efficient way.

Finally, all this will be brought together by an institutional mechanism for policy governance, monitored and implemented by an Inter-Ministerial Empowered Committee set up under the chairmanship of Secretary, MeitY. Other enabling mechanisms suggested include Data Centre Facilitation Unit and an independent Data Centre Industry Council.

Reactions

These fiscal and non-fiscal measures should certainly help boost investments in the already active sector. In my opinion, the policy paper comprehensively covers the important aspects required to establish a sunrise sector in India. These include ease of doing business, streamlining clearances, policy governance mechanism etc. Some initial reactions to the paper recommend increased focus on renewable energy for powering these data centres. Other comments hail the attempt to simplify processes for clearances and approvals. Narendra Sen, founder, RackBank Datacentres was quoted in an article saying that “We have to go to 36 government departments to get various clearances and it is time-consuming. Simplification of rules for DCs is necessary for its build-out”. As the industry continues to engage with MeitY with its comments and suggestions over the next 7-10 days, it will be interesting to see what modifications are implemented in the final policy paper.