India is poised to add an impressive 500 MW of data centre capacity over the next four years, driven by a surge in demand for artificial intelligence (AI) applications, according to a recent report by Avendus Capital. This forecast reflects the country’s rapid evolution in the data centre sector, which has become one of the fastest-growing markets globally.

The data centre industry in India has experienced substantial growth, doubling its capacity from 540 MW in 2019 to 1,011 MW in 2023. This expansion positions India among the top data centre markets worldwide. With AI workloads expected to surpass traditional cloud computing in terms of demand, the need for data centres is projected to rise significantly.

Prateek Jhawar, Managing Director and Head of Infrastructure and Real Assets Investment Banking at Avendus Capital, highlighted that the sector is maturing with the influx of long-term investors. These investors are committing over $250 million per investment, focusing on de-risked returns. The sector is anticipated to grow at a compound annual growth rate (CAGR) of 26 percent over the next three years, attracting a diverse range of investors from growth-stage private equity to long-term pension and sovereign wealth funds.

Jhawar emphasized that India’s data centre market is set to lead the next wave of investments in both real estate and AI, unlocking significant value for stakeholders. Developers are expected to achieve internal rates of return (IRR) exceeding 25 percent with a build-and-sell model, indicating the sector’s potential for superior returns compared to other real asset classes.

The data centre capacity in India is projected to double to 2 GW by 2026. In a notable trend, hyperscalers in the country are increasingly opting to build and own data centres customized to their needs, supported by favorable regulatory frameworks for data sovereignty.

The report reveals that nearly 94 percent of the current data centre capacity is concentrated in India’s top seven cities. Mumbai is anticipated to account for around 40 percent of the new capacity added in the next five years, reflecting its central role in the industry. Chennai and Delhi are expected to contribute approximately 25 percent and 15 percent, respectively.

Additionally, the report forecasts substantial demand for edge data centres smaller facilities located close to the populations they serve—due to rising data generation and consumption in tier 2 and tier 3 cities. This shift highlights the evolving landscape of data centre infrastructure in India.