Relevance: GS-3 : Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

Keywords: Data Centers, Data localisation, Infrastructure status for data center,

Why in News ?

• Recently, the Finance Minister granted infrastructure status to the data center industry while announcing the Budget 2022-23
• Data centers and energy storage systems including dense charging infrastructure and grid-scale battery systems will be included in the harmonized list of infrastructure.

Key Highlights

• In 2020, Maharashtra, Tamil Nadu, and West Bengal cumulatively added more than a million sq. ft of data center space.
• Singapore-based realty firm CapitaLand said it will invest $1.5 billion-$2 billion to ramp up its data center presence in India.
• Global data center firm Equinix Inc. had also completed a $161 million acquisition of GPX India, the Indian operations of GPX Global Systems Inc., and plans to set up multiple new centers in India.

About Data Center:-

• It is a dedicated secure space within a building/centralized location where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing or allowing access to large amounts of data.
• The key components of a data center design include routers, switches, firewalls, storage systems, servers, and application-delivery controllers.

Significance of the Status

• The infrastructure status allows data centers to play a key role in enabling a digital economy.
• This will facilitate credit availability for digital infrastructure and clean energy storage.
• It provides access to foreign investment and private capital, helps borrow funds at lower cost, and thus enables rapid deployment of data centers across the country.
• It has not only led to expectations of rapid growth on the back of a sizable flow of foreign investment and private capital into the sector but may also spur digital businesses, including fintech, healthtech, and edtech, which generate a large quantum of data.
• It will bolster data localization in the wake of protection of data sovereignty in the age of globalization.
• An industry status would have also allowed data centers to be included in the state or central industrial policy.

Benefits

• This change will create incentives for tech players who aim to invest in this space.
• If it is combined with the push on clean energy, such as solar and other renewables, then it supports firms across industries to meet their sustainability goals as well.
• Data centers are of strategic importance to digital infrastructure and in securing data by localization.
• The grant of infrastructure status will help spur “all digital businesses”

Importance of Data Centers to Business

• In the world of enterprise IT, data centers are designed to support business applications and activities that include:
  • Email and file sharing Productivity applications
  • Customer relationship management (CRM)
  • Enterprise resource planning (ERP) and databases
  • Big data, artificial intelligence, and machine learning
  • Virtual desktops, communications and collaboration services

Data Center Industry

• India, with over 750 million internet users, is well on track to becoming a full-fledged digital economy.
• The National Optical Fiber Network plans to connect 250,000 Gram Panchayats in the country with high-speed broadband.
• With increasing internet penetration in the country and more users going online, the data center market is primed for growth.
• Indian data center industry capacity is expected to double from 499 MW IT load to 1007 MW IT load by 2023.
• The size of the digital economy in India is estimated to grow from USD 200 billion in 2017-18 to USD 1 trillion by 2025.
• India has witnessed an exponential growth in digital-commerce, digital entertainment and use of social media.
• India’s mobile data consumption is already the highest in the world and is constantly increasing.
• The demand for digital infrastructure in India is expected to rise rapidly in the coming years.
• India’s geographic location and favorable policies are expected to make the country a hub for data centers catering to the southeast Asian region in the next five years.

Concerns

• Even with data centers being listed as infrastructure providers, much still hinges on the data protection bill.
• Unless the bill is in place and data protection laws are solid, infrastructure status may still not pull in investments given that some stakeholders, especially investors from overseas, could be hesitant to invest.
• The bill should have the provisions that will match the standards of overseas companies wanting to invest in India.
• Another issue that has not been addressed and is one of the challenges in setting up data centers in smaller cities is network connectivity.
• The lack of a data protection bill in India could spoil the party.
• The government needs to introduce a clear framework on the regulations around hosting data in third-party data centers, they contended.
• Complex clearance processes, time consuming approvals, high cost of power, lack of published standards, absence of specialized building norms for building the Data Centers, submarine cable network connectivity limited to few states and high cost of capital and operational expenditure etc are also some known impediments to the growth of data center sector.
• The data center industry has been largely concentrated in top 4 cities, with Mumbai, Delhi, Bengaluru and Chennai accounting for 60% of total sites.

Way Forward

• Incentives for the industry “should be linked with quality certifications of data centers”, which would help build world-class infrastructure in India.
• The government should have promoted indigenous manufacturing of equipment or components used in data centers, which would help boost initiatives such as Make in India.
• Currently, there is no large-scale foreign investment in data centers in the country. India could essentially become a data center hub for global enterprises, if the government has a clear cut policy around it.

Conclusion

• The draft finance bill does not appear to have made any direct provisions for data centers but the budget’s emphasis on the digitization journey will naturally and positively influence the growth of the data center segment

Source: The Hindu BL

Mains Question:

Q. What are ‘data centers’? Why are they being identified as a potential risk to climate sustainability? Explain.