New data centre policy to simplify rules, attract capital

Venkatesh Ganesh Mumbai | Updated on November 16, 2020

Focus on ease of doing business by way of fast clearances; cheap, clean power

The proposed National Data Centre (DC) policy aimed at simplifying existing rules, and giving it “infrastructure” status could see big ticket investments in this space.

Since the onset of Covid-19, data consumption globally has surged; in India too, it has gone up on the back of work from home, tele-medicine, online education and digital commerce.

This, coupled with the upcoming Personal Data Protection Law, has made the IT Ministry to come up with a framework for data centres. At the outset, the government seems to have ticked many check boxes from simplification of rules to creating zones, which are currently restricted to Navi Mumbai, Chennai and Hyderabad.

Capital-intensive sector

“By designating data centres as “infrastructure” as opposed to “industry”, the sector will be able to access credit more easily,” said Sharad Sanghi, CEO, Global Data Centres and Cloud Infrastructure of NTT Ltd in India. The need for capital stems from the fact that DC is a capital-intensive sector with a long payback period, where a handful of players have around 80 per cent market share.

These include NTT-owned Netmagic, Ctrl S, Hiranandani-owned Yotta Infrastructure, Amazon, Microsoft, Oracle and others.

As data use grows exponentially, DCs are critical to the functioning of the internet.

The Indian data centre industry has clocked $1.2 billion in revenues in fiscal 2020 and Crisil expects the industry to log a rapid 25-30 per cent CAGR to $4.5-5 billion by fiscal 2025.

Additionally, the government is looking at ease of doing business in the form of fast clearances, cheap and clean power: The policy emphasises single-window clearance in a time-bound manner by State governments, standardisation in terms of security and the creation of a category for data centres in the National Building Code, 2016.

Single-window approvals

“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,” said Narendra Sen, founder, RackBank Datacenters. For promoting FDI, ease of doing business is more important than incentives. So, the reduction in the number of approvals and single-window time-bound approvals is the right step, stated Manoj Paul, Managing Director, GPX India.

In addition, it has emphasised that data centres be provided access to uninterrupted and cost-effective electricity using renewable energy. The government’s plans of offering incentives in the form of tax breaks will definitely improve profit margins for companies, according to Abhishek Gupta, Principal Associate, MZM Legal. Industry watchers cite the example of the 20- year tax exemption which created the multi-billion Indian IT industry that could be replicated for DCs too.

Nitin Kunkolienker, President, Manufacturers’ Association for Information Technology (MAIT) is of the view that policies should be jointly framed with states. “There’s lack of cooperation in certain states and many departments don’t co-ordinate with each other,” he said.

On the creation of 4 DC zones, Sanghi pointed out that competing players will not go and, instead, companies should be free to set up centres where they want.

Kunkolienker also said that power availability and quality are critical. “Quality and availability of uninterrupted power is an issue and investors won’t come in if they don’t get this,” he said.

MeitY’s draft policy: Key highlights
  • Accords “infrastructure” status to data centres to attract more investment
  • Reduces dependence on imported equipment to promote domestic manufacturing
  • States to be encouraged to demarcate specific zones for setting up DC parks with necessary infrastructure.
  • At least four data centre economic zones to be set up
  • Facilitates DC providers to establish captive fibre networks, especially for connecting data centres

Published on November 16, 2020

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