India budget’s small change in data centre status will make a big difference

“Data centres… will be included in the harmonized list of infrastructure.”

That’s all that Finance Minister Nirmala Sitharaman had to say about these buildings, critical to modern IT operations, in her speech introducing the 10th union budget of the Narendra Modi-led government on Feb. 1, 2022.

But that word “infrastructure” will make a world of difference for enterprises looking for somewhere to stow their servers, or for cloud service providers looking to bring computing power closer to customers. It means that data centres are now classified as infrastructure assets, making it easier to borrow money to build them.

Rishu Sharma, associate research director, Cloud, and AI at IDC India explains what this means: “It makes the availability of credit at low rates possible, especially as [building and operating] data centres is a capital-intensive industry. It also enables the local providers with their geographical expansion strategies in the global arena.”

Basant Chaturvedi, associate director of IT for South Asia, MEA & LatAm at Perfetti Van Melle, says that this is a welcome move to help CIOs attract external borrowings, including foreign investment, and will increase the commercialization of data centres in India. “This may also attract organisations’ investment in setting up their primary data centres in India or diverting investment to India as the cost of skill and infrastructure will be economical. In future, we will see more cloud service providers from India to the world.”

Service providers’ earlier data centres were categorised as IT/ITES but having them listed as infrastructure will give companies like NxtGen Datacenter and Cloud Technologies access to low-rate loans, says CFO Ritesh Khandelwal.

Data centre provider STT GDC India too welcomes the move. CEO Sumit Mukhika says this announcement will enable concerted efforts on multiple fronts, including 5G rollout and infrastructure development, and will help in creating a wider and stronger digital ecosystem in India.

Missing connectivity

Naveen Mishra, senior director analyst at Gartner, says while it can demonstrate concrete long-term ROI for investors providing better funding for real estate, power, and storage systems — the three critical components for operating a data centre — there are still issues that are left unaddressed. “Data centres are still not built in smaller cities. There, network connectivity is still an issue which is not addressed in the budget.”

Another data centre provider, Yotta infrastructure, says this move will ensure better access to borrowing at a reduced rate, since banks’ capital adequacy requirements are relaxed for infrastructure lending.

However, the government could have done more to help data centres further other policy goals, says Yotta Infrastructure CEO Sunil Gupta: “Given the recent progress on the Personal Data Protection Bill 2019 and the Government’s ambitions towards ‘Atmanirbhar Bharat’, it would be nice to have a clear framework on the hosting of data in third-party data centres and related incentive schemes. Additionally, incentives linked with quality certifications of data centres would also have been welcome as this would have spurred the development of world-class digital infrastructure in India.”

Even if the government could have gone further in other areas, this one small change in category will have knock-on effects across the industry, said IDC’s Sharma: More data centres means more equipment to manage, which means more sysadmins and network managers. “It opens up avenues for employment, as specialised skills will be a key ask.”