With the second largest developer community, rapidly growing enterprise IT market and an economy that is growing at heathy rate of 7% per year, India is quickly becoming an attractive market for all the major global Cloud Service Providers (CSPs). In September 2015, Microsoft announced the launch of three Azure cloud data centers in India, while IBM announced the launch of its first SoftLayer cloud data center in India in October 2015. IHS believes that Amazon Web Services will also launch its own cloud data center in India in 2016..
For CSPs, choosing where to locate their data center for cloud services is becoming an extremely important strategic question. Market trends, regional, national and local regulatory conditions, security factors, and infrastructure conditions vary by region and country, creating operational and strategic implications for companies when they select territories for data centers.
CSPs evaluating India for data center facilities need to understand the demand for cloud services in the world's largest democracy, as well as regulatory and infrastructure considerations, including telecommunications and energy.
In particular, it's important to consider the political and economic dynamics within emerging markets like India, and how they impact the regulatory environment. Expected to be the world's most populous country by 2050 with 1.6 billion people, India has an enterprise IT market that is being served by data centers that are normally concentrated in cities such as Chennai (Tamil Nadu), Bangalore (Karnataka), Hyderabad (Andhra Pradesh), Mumbai (Maharashtra), and New Delhi.
Regulatory and Security Issues
Cloud service providers face significant regulatory and security issues in India, per IHS Country Risk analysis, which ranks India’s corruption and regulatory burden as "very high." (See Indian Risk Graphic). There's also the possibility of terrorism, due to developments in Afghanistan and Syria and elsewhere in the region. Cyber security threats pose a growing concern in India as they do globally.
Looking ahead, Prime Minister Narendra Modi’s BJP party’s strong political mandate should enable his government to push forward a number of “big bang” and incremental reforms that lower the regulatory burden for businesses. Due to the Modi government efforts during the last 18 months, India’s rating on the World Bank’s latest ease of doing business rankings improved; India now ranks 130th out of 189 countries (representing a 12-place gain). Privatization, deregulation, and infrastructure spending should aid economic growth and improve business and consumer sentiment, IHS believes.
Telecommunications, Energy Considerations
Today, broadband is available to just 20 million of India's 200 million Internet users. Future broadband coverage In India will be achieved via mobile broadband networks. Most of this connectivity is through 2G and 3G wireless, although 4G service is coming onto the market. Notably, Reliance Jio Infocomm Limited (RJIL), an upcoming provider of mobile telephony, broadband services, and digital services, plans to provide 4G services across India using LTE technology starting in March 2016. RJIL's LTE network, which will give 80% of the rural population and 90% of the metro market LTE coverage, represents a sea change in India.
Unfortunately, broadband and other national infrastructure priorities in India have been significantly delayed due to political wrangling. Take India's $15.3 billion Smart Cities Initiative, which seeks to improve living conditions through efficient urban management using digital technology. The government's inability to pass legislation easing regulations around the acquisition of land is likely to undermine its Smart Cities program, in IHS's view. Continued uncertainty about land-acquisition rules mean that Smart Cities projects face risk of delay, protests, and potential cancellation. IHS expects the central government to give state governments more of a hand in passing their own legislation and regulation, meaning that market entrants will need state-by-state regulatory insight.
On the energy front, the continued lack of availability of reliable power supply makes India a less than attractive location for data centers. Presently data centers rely on backup energy sources (typically diesel generators) as they face two to three hours of power shutdown daily. When locating a data center, an enterprise or cloud services provider needs to assess the trade-off between reliability and tariff reforms (leading to a higher cost of power) in a state. Higher reliability typically comes in states with higher energy costs.
IHS believes India has significant potential for data center growth due to factors such as a skilled labor force, assuming companies find ways to mitigate risks related to power reliability and power cost issues. Additionally, as the Modi government works on power distribution issues, power reliability is expected to increase.
Mike Hartnett is Senior Manager with IHS Economic and Country Risk Consulting
Dr. Jagdish Rebello is a senior Director with IHS Technology
Posted on 22 January 2016