In New Delhi, the Indian government's Digital India initiative has given a major boost to the city's nascent startup ecosystem, particularly the e-commerce arena. Combined with the government's own recent adoption of colocation services all over the country, New Delhi has emerged as a critical destination for almost all of the country's top datacenter providers.

Other factors augmenting this trend have been the growth of the financial services industry in India, the second biggest country in the world, as well as, in particular, the rise of its still-growing cloud and managed hosting sectors. The New Delhi market has developed despite rising land costs in the center of the city and what appears to be a serious power deficiency, particularly in its outlying areas.

Overall development in New Delhi, as in India generally, will come primarily through broader events already well under way, namely local enterprise adoption of cloud and managed services. However, in New Delhi itself, government efforts can make a substantial difference, and help accelerate these trends by improving the infrastructure underpinning technological advancement, especially network density and power availability and reliability. The Digital India initiative has had a strong effect in the country's capital and surrounding administrative region, where it has enabled the emergence of a startup economy and helped boost growth in a still young and expanding datacenter market. If the authorities can hit their targets in these areas, half of the battle will be won. New Delhi's ever-widening pool of IT-savvy end users, should, in the long term, take care of the rest.

The capital of Digital India

New Delhi has been India's seat of government since 1947, when the country gained independence from the UK. The city itself includes Old Delhi, the walled former capital of the Mughal Empire, and New Delhi, the area that has developed since that time, including under English rule.

Municipal authorities currently administer New Delhi as part of the National Capital Region (NCR), a sprawling metropolitan area that includes neighboring up-and-coming cities like Gurgaon, Faridabad and Noida. As the center of the second largest country in the world, India's NCR has a population of about 46 million. Government and state-related enterprises are the driving sectors in New Delhi, as opposed to Mumbai, India's financial hub, or Bangalore, the country's top IT destination. Manufacturing represents another major industry in the city, as do healthcare and education.

In addition, as part of Prime Minister Narendra Modi's Digital India initiative, launched in 2015, the authorities are actively promoting the development of the NCR's application-based startup ecosystem. Overall, the goal of the program is to empower the country technologically, by improving IT infrastructure and penetration and by ensuring that government services are made available to citizens electronically.

The authorities also made changes to the corporate tax code, and imposed a relatively strict demonetization policy across the country last year to spur growth in India's e-commerce industry. Large-scale enterprises have followed the state's lead on this front, and are developing their own e-commerce applications.

Government driving the market

Although traditionally the government has not outsourced much of its IT requirements, earlier this year, the Ministry of Electronics and IT published a list of colocation and cloud providers preapproved for some government deployments.

The program includes a data sovereignty requirement, and departments that have shifted workloads to the cloud include the Department of Post, the Ministry of Human Resource Development, which oversees the country's public education, and even the Ministry of Law and Justice. An additional state-sponsored boon for technological growth in India is the Smart Cities initiative, started by the Ministry of Urban Development.

All over India, recent government adoption of outsourced IT services has accelerated the development of the country's datacenter market, and provided a substantial and consistent source of revenue for its top providers. ST Telemedia Global Data Centres (STT GDC), which now owns a majority stake of Tata Communications' facilities in India, reports that it hosts many government agencies.

Netmagic Solutions (Netmagic), now owned by Japan-based NTT Communications, and CtrlS are on the list, and the authorities also work with a number of more specialized colocation and managed hosting firms.

Other forces have contributed to the rise of the New Delhi market itself, however. Nxtra Data, a subsidiary of Bharti Airtel, boasts clients from the financial services and online content sectors. Due to the financial regulatory landscape in India, which is relatively lenient, e-commerce companies tend to utilize colocation. The IoT industry is also beginning to develop in the country.

Still, for datacenter providers in New Delhi and the rest of India, cloud and managed hosting are the most crucial sources of growth right now. Amazon Web Services (AWS) reportedly leverages the services of several different colocation providers in Mumbai alone, while players in the industry believe that all of the top hyperscale firms are considering expanding their operations in India.

An emerging city with a power problem

As a recent hotbed of technological activity, NCR has attracted most of the India market's top datacenter providers. STT GDC maintains three datacenters in central New Delhi, two of which it considers legacy, and is constructing a new office at one of them. Nxtra, which has a managed services partnership with CenturyLink and newly enhanced cloud products, owns three facilities in Noida and one in Gurgaon. In Noida, where land is relatively cheap, there are also datacenters operated by Netmagic, CtrlS and Sify Technologies, while other providers are considering entering the fray soon.

Even with the increased activity and attention, certain obstacles continue to hinder the development of the NCR region's datacenter market. These include a high water table outside the New Delhi city limits. The biggest concern, however, for providers and potential customers in the city is power. Indian providers without facilities in New Delhi contend that power is much less reliable in the capital than it is in Mumbai, and that some facilities there may run on generators as often as once a day.

The power problem is said to be much worse in outlying areas like Noida and Gurgaon. Clearly, potential customers have taken note of the issue, and providers report having trouble filling up space in Noida. Due to this lack of customer take-up, some companies are emphasizing their managed services more when attempting to win business from local enterprises.

To avoid power issues in outlying areas, many providers have been trying to build as close to the center of New Delhi as possible. However, it is difficult to find suitable space in the city. In fact, one of the aims of Smart Cities, which mostly encourages growth in smaller cities like Ahmedabad and Nagpur, is to alleviate pressure on places like New Delhi.

Datacenter providers in the capital typically have facilities in other cities already, and do not seem worried by this emphasis. Instead, they are heartened by the emergence of disaster recovery and business continuity services in India. Digital India has also precipitated an improvement of New Delhi's network infrastructure and density, leading to lower costs that help offset land prices.
Teddy Miller
Associate Analyst

As an Associate Analyst for 451 Research, Teddy focuses on covering the multi-tenant datacenter market in the Asia-Pacific region, particularly mainland China.

Jean Atelsek
Analyst, Digital Economics

Jean Atelsek is an analyst for 451 Research’s Digital Economics Unit, focusing on cloud pricing in the US and Europe.

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