Throwback to SEZ era: Real estate sector makes room for data centres

Setting up data centres has become the new playground for the battered real estate sector in India, harking back to the early years of the special economic zone (SEZ) era. The central government ministries, too, are getting into the act on behalf of the sector. 

At the height of the SEZ era, the commerce and finance ministries had squared off over benefits to the real estate companies entering SEZ development.  

Expansion of data centres — the digital back-office for companies — promises big returns. Global investments are expected to touch $42 billion in three years as the world switches to digital mode, said Gartner. More than a quarter of that spend, or about $11 billion, is expected to be concentrated in the Asia Pacific region, mainly China, Hong Kong, Singapore, Australia, and India. Of this, India will reach $3.2 billion by the end of 2020, despite the Covid-19 pandemic, stated the report. 

Data centres need massive built-up space. This is where the real estate sector comes in. The sector consequently wants the government to offer fiscal sops to reel in the industry. The Union Ministry of Information Technology (IT) is willing to cooperate and expects to come up with a data centre policy soon. In a rerun of the SEZ policy, the take-off for investments depends on the finance ministry and the Reserve Bank of India (RBI) to offer financial support.

“We have approached the finance ministry to offer fiscal support,” said Jyoti Arora, special secretary in the IT ministry. It can either be in the form of concessions on land pricing or tax sops to make up for the perceived high cost of power needed to run these facilities non-stop. 

For the RBI, the big ask from the industry is to classify the data centre business as an infrastructure sector like the logistics sector, so that developers can avail of loans at rates that can make a difference of at least 100 basis points from those available for sectors like IT and IT-enabled services. 

While Finance Minister Nirmala Sitharaman had promised in Budget 2020-21 plans to set up parks across the country, the industry wants more. It wants her to announce income-tax set-offs to build the parks, which the revenue department is disinclined to accept. 

Almost every week, interest groups organise road shows to proffer the benefits of the data centre business. Last week, the Associated Chambers of Commerce and Industry of India (Assocham) organised a virtual space interaction of the industry with the IT ministry. This week, real estate consultancy Anarock Property Consultants issued a report on the subject. More are expected in the coming weeks. 

In June, Hiranandani Group announced setting up of a digital technology venture to grab a share of the real estate business surrounding the Cloud economy. The group plans to invest Rs 15,000 crore in the sector through its special purpose vehicle, Yotta Infrastructure, which opened its first hyperscale data centre in Mumbai. 

The market was so long dominated by firms like CtrlS, GPX Global Systems, and NTT. Adani Group, too, has plans to invest Rs 70,000 crore in data parks in Andhra Pradesh. So does Bengaluru-based Salarpuria Sattva, reports Anarock.  

Data centres can be built by a real estate company or a wholesale data centre operator. It has largely been the latter in India, but more realty companies want in. Within the facility, there can be a wide range of options for companies to choose from, including renting the IT infrastructure to house their digital operations to putting up their own machines in a part or the whole building. The builders can offer a wide menu on a pay-as-you-go model, ranging from basic colocation services for small firms to top-level application management services, where the IT infrastructure is also managed by them.

These centres need three main ingredients to work: Land to set up towers, an assured supply of power, and water to filter the air conditioners to keep the machines cool and working 24 hours. Of these, land is as usual the most complicated. The centres have to be located near large cities to source the national fibre grids, and tap into trained labour. 

Manu Sharma, chief financial officer of Pi Datacenters,  said the choice of locations could impact costs by up to 30 per cent. “It is unfair to expect domestic companies to compete with global giants, unless some of these costs are neutralised,” he said at the Assocham event. 

Power supply is also crucial to a data centre. The capacity of a centre is usually measured in megawatts (Mw). 

CtrlS, for instance, measures one of its latest towers in Mumbai as a 24-Mw facility, the one in Bengaluru as a 12-Mw one and so on, according to Samuel J Varghese, vice-president, global marketing, CtrlS. Its upcoming 250-million square feet facility in Mumbai will need a corresponding large share of land and an assured supply of 250 Mw. Given the patchy record of most Indian states to ensure reliable and adequate power supply, many of the companies are turning to solar. Or else, they would prefer open access from the grid, which means the right to choose their own power supplier.

It works out cheaper for them.

But cash-strapped state electricity distribution companies are loath to let them do so.