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BENGALURU: The grant of infrastructure status to the data centre industry, as proposed by the Union Budget presented on Tuesday, has not only led to expectations of rapid growth on the back of a sizeable flow of foreign investment and private capital, but also hopes of acceleration in digital businesses, including fintech, healthtech, and edtech, which generate a large quantum of data, according to industry experts.

“The infrastructure status allows data centres to play a key role in enabling a digital economy, as it provides access to foreign investment and private capital, helps borrow funds at lower cost, and thus enables rapid deployment of data centres across the country," said B.S. Rao, vice president, marketing, CtrlS Datacenters.

Both infrastructure and industry status provide better access to finance. An industry status would have also allowed data centres to be included in the state or central industrial policy. However, infrastructure status would allow “better access to capital borrowings at a reduced rate" as banks have a relaxation in maintenance of capital adequacy for infrastructure lending, said Sunil Gupta, co-founder and chief executive officer (CEO), Yotta Infrastructure.

Demand for digital infrastructure in India is expected to rise rapidly in the coming years. India’s geographic location and favourable policies are expected to make the country a hub for data centres catering to the southeast Asian region in the next five years, industry experts said.

“This change will create incentives for tech players who aim to invest in this space. If we combine it with the push on clean energy, such as solar and other renewables, then it supports firms across industries to meet their sustainability goals as well," said Ashutosh Sharma, research director, Forrester Research India.

Data centres are of strategic importance to digital infrastructure and in securing data by localisation, noted P.N. Sudarshan, partner and TMT leader at Deloitte India. The grant of infrastructure status will help spur “all digital businesses", Sudarshan said.

In 2020, Maharashtra, Tamil Nadu, and West Bengal cumulatively added more than a million sq. ft of data centre space.

For instance, earlier this month, Singapore-based realty firm CapitaLand said it will invest $1.5 billion to $2 billion to ramp up its data centre presence in India. Global data centre firm Equinix Inc. had also completed a $161 million acquisition of GPX India, the Indian operations of GPX Global Systems Inc., and plans to set up multiple new centres in India.

That said, the lack of a Data Protection Bill in India could spoil the party, pointed out industry experts. The government needs to introduce a clear framework on the regulations around hosting data in third-party data centres, they contended.

Incentives for the industry “should be linked with quality certifications of data centres", which would help build world-class infrastructure in India, Gupta said. The government should have promoted indigenous manufacturing of equipment or components used in data centres, which would help boost initiatives such as Make In India, he said.

Even with data centres being listed as infrastructure providers, much still hinges on the Data Protection Bill, said Sanchit Vir Gogia, chief analyst and founder of Greyhound Research. “Unless the bill is in place and data protection laws are solid, infrastructure status may still not pull in investments given that some stakeholders, especially investors from overseas, could be hesitant to invest. The bill should have the provisions that will match the standards of overseas companies wanting to invest in India," Gogia said.

Another issue that has not been addressed and is one of the challenges in setting up data centres in smaller cities is network connectivity, according to Naveen Mishra, senior director analyst at market research firm Gartner,

“The draft finance bill does not appear to have made any direct provisions for data centres but the budget’s emphasis on the digitization journey will naturally and positively influence the growth of the data centre segment," pointed out Sudarshan.

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