India’s data-centre industry is gaining ground against rival markets on cost, with cheaper power, land and construction helping operators attract hyperscalers even as governments offer additional incentives.
The cost of setting up a data centre in India is 30-50% lower than in developed markets across Asia, Europe and the US, according to a Nomura report dated 2 June. Building a facility costs $6-7 million per MW in India, versus $10-14 million per MW in the US and Europe, excluding land and computing equipment.
Cheaper land and electricity account for about a third of the total setup cost, Nomura said. Lower labour and construction costs, cheaper materials and a growing domestic supply chain further widen the gap.
The cost advantage comes as India’s data-centre capacity is set to surge to 12GW by 2030, according to research firm Wood McKenzie. India’s current data-centre capacity is 1.5GW, according to government data. In 2025, the country added 387MW of capacity, more than double the 191MW added in 2024, according to data analytics firm Rubix Data Sciences.
Power matters
The advantage extends beyond construction. Electricity is a major operating expense, accounting for about a fifth of the total cost of running a data centre.
Electricity costs about 8.4 US cents (approximately ₹7.8) per kilowatt-hour (kWh) in Chennai, less than half Singapore’s 18.1 cents. Mumbai, at 12.8 cents, is also cheaper than Sydney and Tokyo, where power costs about 15 cents and 14.3 cents, respectively.
Operators can also use open-access arrangements, renewable power purchase agreements and captive sourcing to lower their effective power costs, according to Nomura.
“We think the real advantage emerges at the effective power cost level, where open access, renewable PPAs (power purchase agreements), and captive sourcing can reduce costs to ~6–7 USc/kWh. This brings India closer to the lowest-cost global benchmarks while benefiting from stronger demand depth, scalability, and a more mature colocation ecosystem,” said the Nomura report.
“Despite not always leading on grid tariffs, India’s blended cost structure and procurement flexibility make it one of the more attractive markets for hyperscale data centre deployment in APAC, in our view,” the report stated.
Vijay Agarwal, managing director–infrastructure at brokerage firm Equirus Capital, said lower power costs and greater access to renewable energy were also giving India an edge.
“Power availability has improved sharply. India recently crossed 500 GW of installed capacity, with a rising share of renewable generation. On the ground, operators increasingly bypass expensive state utility tariffs altogether: open-access power purchase agreements can land renewable power at ₹4-7/unit versus ₹7-10/unit from state distribution companies, a difference that compounds over a 20-25-year asset life,” Agarwal said.
Policy sweetener
Government incentives are “more of a margin enhancer on top of an already-lower base cost,” Agarwal said. The Draft National Data Centre Policy proposes up to 20 years of conditional tax exemptions, 100% electricity duty exemption, input tax credits on equipment, and dedicated Data Centre Economic Zones, according to him.
Agarwal added that “state governments are currently doing the heavy lifting” as they are vying for more business from hyperscalers including Microsoft and Google.
Naresh Singh, senior director analyst at Gartner, said India’s “aggressive plans to generate a significant share of data centre energy from renewables such as solar power make it a viable destination for large-scale gigawatt data centres.”
The cost advantage is also reflected in what operators charge for capacity. Wholesale colocation rentals in India, particularly Mumbai, are lower than in developed markets, according to Nomura.
“India – particularly Mumbai – operates at a structurally lower pricing level, with wholesale colocation rentals (excluding power) in the range of ~USD78-100/kW/month based on industry benchmarks,” the Nomura report said.
Wholesale co-location refers to large-scale customers buying significant amounts of power and cooling capacity rather than a few racks. Pricing is typically based on power consumed rather than floor space.
India’s wholesale co-location rates can reach about $100 per kilowatt a month, compared with as much as $205 in Europe and the US, and about $343 in other Asian markets, according to Nomura.
“India’s advantage comes from a combination of lower land and construction costs, competitive engineering and labour costs, and an increasingly mature domestic supply chain. Local availability of contractors, equipment and construction expertise also reduces dependence on expensive imports and helps bring down both capex and execution costs,” said Vinish Bawa, partner at PwC.
Sify Infinit Spaces, the data-centre arm of Sify Technologies, said in its FY26 annual report that “India is positioning itself as a global hub for data centre investments, driven by strong demand growth, cost advantages, and a rapidly expanding digital economy.”
“At the same time, Middle Eastern (West Asian) economies are actively investing in overseas data infrastructure, with India emerging as a preferred destination due to its cost efficiency, talent availability, and policy support,” Sify said.
Challenges remain
But India’s cost advantage is not uniform. Land prices are rising in Mumbai, Chennai and Hyderabad as operators compete for suitable sites. Mumbai and Chennai together account for more than half of India’s data-centre capacity.
Infrastructure is emerging as another constraint. On 3 August, Mint reported that shortages of transmission lines and substation capacity are emerging as key bottlenecks for India’s data centre expansion.
Water availability is also a concern, with more than half of data centres located in water-stressed regions. The sector is highly concentrated, with 75% of facilities spread across five states—Maharashtra, Tamil Nadu, Karnataka, Telangana and Uttar Pradesh—many of which face high or extremely high water stress, according to independent research firm WRI India.
These constraints are adding to the push towards smaller cities, where cheaper land and state incentives are drawing investment. A 24 July Mint report said operators are expanding into cities such as Bhubaneswar, Patna, Jaipur and Kolkata, helped by capital subsidies and tax incentives.