Draft data centre policy of India 2020: an overview

Tuesday 24 August 2021

Sushant Shetty
Fox Mandal & Associates, Mumbai

Rikky Dedhia
Fox Mandal & Associates, Mumbai

‘It is now a cliché – data is the new oil – and, indeed, analytics, fintech and the internet of things are quickly transforming the way we deal with our lives.’

The above quote by Nirmala Sitharaman, the Minister of Finance of India, in her speech at the Union Budget 2020 was followed by the announcement of a comprehensive policy to assist the private sector in building data centre parks throughout India. With the advancement of technology, every sector or organisation is in need to access and analyse data and one of the critical problems faced today is the storage and security of such data. Moreover, the Covid-19 pandemic and subsequent lockdown has augmented the use of data resulting in increased demand for cloud computing services and consequent rise of data centres across the globe. Hence, globally data centres have been one of the least-affected and therefore one of the more favoured alternative real estate asset classes during the ongoing public health crisis.

The Indian government’s Ministry of Electronics and Information Technology (MeitY) released the Draft Data Centre Policy 2020[1] (Draft 2020 Policy) to ensure viable as well as reliable data centre capability for India. While the setting up of data centres in India currently presents certain key benefits such as a strategic geographical position from a global perspective; accessibility of land and raw materials; well-established connectivity worldwide via submarine cables in cities like Mumbai and Chennai; constant and economical power supply in selective zones; and a skilled workforce, the Draft 2020 Policy also acknowledges a few known obstacles such as the ‘lack of infrastructure or industry status of the data centres, complex clearance processes, time consuming approvals, high cost of power, lack of published standards with regard to setting up and operations, absence of specialized building norms for building the data centres, submarine cable network connectivity limited to few states and high cost of capital and operational expenditure etc’. The Draft 2020 Policy aims to counterpoise these challenges.


Since the data centre market is still at the nascent stage, the Draft 2020 Policy defines various terms so that there is greater clarity among various stakeholders and ambiguity is avoided. Here are some key definitions:

  • Data centre: ‘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’.
  • Data centre park: ‘specialized secure Data Zone, strategically located with the most conducive non-IT and IT infrastructure, and regulatory environment for housing mix of small scale/large scale/clusters of Data Centres to serve the high needs of compute, storage, networking and provision of a wide range of data-related services’.
  • Data centre economic zone: ‘concentrated and specialized Data Zones, with the most conducive non-IT and IT infrastructure, connectivity, power and regulatory environment’. 
  • Data centre incentivisation scheme: ‘projected scheme outlay that will be published by MeitY to provide the scheme details to provide the fiscal and non-fiscal benefits to Data Centre sector and Cloud Service providers’. 

Salient features

Apart from overcoming obstacles which are already mentioned hereinabove, the Indian government intends to formulate some schemes to attract more participation from private players both domestic and international. Some of the key features of the Draft 2020 Policy are:

Formulation of data centre incentivisation scheme

The Indian government intends to formulate an incentivisation scheme for the beneficiaries complying with the applicability criteria in the form of fiscal and non-fiscal nature, usage of domestic IT hardware and non-IT equipment. The incentives shall be more beneficial to the industries operating under the ‘Make in India’ government initiative.

Favourable ecosystem for operation of data centres

With an intention to provide long term growth for data centres, the Indian government inter alia intends to (1) provide uninterrupted, clean and cost-effective supply of electricity, with a key focus on providing quality power, setting up power generation units within the data centre parks, the direct procurement of power from power generation companies, the use of renewable power generation techniques, reduction in carbon footprints and more effective energy management, (2) provide the status of ‘essential services’ as per the Essential Services Maintenance Act 1968 to data centres so that there will be an uninterrupted delivery of services even during crises like the current Covid-19 pandemic as faced across the globe and (3) frame specialised code in the National Building Code of India to facilitate specialised construction and safety approvals for data centre buildings.

Data centre economic zones

In India, the industries located in special economic zones enjoy specialised benefits as compared to other industries. The Indian government intends to set up at least four data centre economic zones, where certain additional incentives will be given to the data centres located in these zones.

Promotion of indigenous technology development, R&D and capacity building

The Indian government envisages the vision of the ‘Atmanirbhar Bharat’ (self-reliant India), and based on such vision, MeitY intends to promote the use of indigenous technology in data centres along with certain fiscal and non-fiscal benefits to startups and micro, small and medium enterprises in order to reduce the overall import of goods and services. Further, the Indian government will promote the research and development activities in data centres along with minimum standards for IT and non-IT security.

Way forward

The data centre industry is an emerging sector and one of the fastest growing markets in the 21st century and the need of the hour is to offer a much-detailed roadmap and, more importantly, to officially implement the Draft 2020 Policy. However, apart from the Draft 2020 Policy, state governments need to tailor the laws according to the suitability of the conditions prevailing and introduce concrete legislation relating to the regulation, licensing and security of data centres. So far, few states such as Telangana and Uttar Pradesh have notified their own data centre policies in a bid to attract data centre players, and similar policies of many more states appear to be in the pipeline.

[1] MeitY Draft Data Centre Policy 2020, www.meity.gov.in/writereaddata/files/Draft%20Data%20Centre%20Policy%20-%2003112020_v5.5.pdf