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ENCOURAGING ESTABLISHMENT OF DATA CENTRES IN INDIA

Author: Ritwik Mehta, III year of B.E Electrical Engineering from Thapar Institute of Engineering and Technology


Abstract

The pandemic has accelerated the fourth industrial revolution - the digital transformation of the world and India’s story of data revolution will be like that of Loudoun County, USA, or a much better version of it, through which 70% of the world's internet traffic passes. A country with a population of 1.3 Bn people having 696.77 million internet users presents a lucrative market for global investors and data centre operators to expand in India. A perfect combination of government policies and power infrastructure, international best practice in data centre deployment from the UK, Europe and North America and Building Information Modelling (BIM) throughout the data centre lifecycle can encourage the establishment of data centres in India.

Since Tier 2 and Tier 3 cities in India will drive the need for data centres, the best practices for their maintenance can opt from the Rapid Data Centre (RDC) in Europe which uses modern techniques of construction to minimise onsite construction, save time and increase quality. With the 5G allocation coming up next along with the implementation of data localisation norms, the need for data centres rises with a view to measure down on latencies. In the coming 3 years, the 3rd party data centres industry is expected to move from the current 590+ MW to ~2000 MW.

The top 12 players out of the total 53 players in the domain of operating data centres are CtrlS, cyfuture, nxtradata, reliance communications, esds, sify, GPX Global Systems and STTelemedia Global Data Centres. There are 17 under-sea cables and 29 landing stations in India, most of them are in NCR, MMR, Pune, Hyderabad, Bengaluru, Chennai, and Kolkata.

The Government of India recently published the Draft Data Centre Policy along with the introduction of the Data Protection Rights Bill. Both of them have some flaws which need to be addressed at the earliest to encourage the establishment of data centres in India. Further, India doesn’t have a Cloud Policy and a legal framework to fight the issues arising out of it. Some strong steps have to be taken to encourage both the public and private sector to invest in this sector. All the policy measures described below in detail can make India ready to establish a robust data protection regime and improve Ease of Doing Business rankings too!


Location Criteria

The decision criteria for choosing a location for data centres are labour markets, staff retention/defection issues, public incentives, communication infrastructure, electrical services, taxes (personal property), proximity to public transit, real estate markets, proximity to services/suppliers, quality of life, security and public safety, and operational considerations.


The site/location of the data centre must not be near a residential area and at a maximum of one-hour distant commutation from major end-users. It should have ready access to power from diverse sources and truck access for equipment delivery. The location must also be outside flood plains, tornado and hurricane-prone areas.


Architecture

Multi-story office buildings with small floor plates must be avoided. Rather, single-story and windowless structures with large open floor plates can opt because they offer lower rental and operating costs, better physical security and more flexible space configuration. Buildings equipped with a dual electric grid and dual communication connectivity can be chosen.

Comments on the Draft Data Centre Policy by MeiTY

Security: There are no security standards mentioned in the draft which a data centre must adhere to. Setting up some standards will ensure government norms and audit processes which are crucial to improving the industry practices. This becomes quite important when many incidences of big data leaks and cyber attacks have been reported in India in the last few years.

Alternative RE procurement models such as Virtual Power Purchase Agreements (“VPPA”) can help scale REdevelopment. A VPPA, or a Contract for Difference (CFD) mechanism, is a contract between a power producer and a consumer to buy a specified power output, at a fixed price (strike price) for a fixed duration. These are derivative contracts that act as a financial hedge against volatile electricity prices. No actual transfer of power takes place. Both parties continue to trade electricity separately on the exchange, at the prevailing market price. But, if the market price is lower than the strike price, the consumer pays the power producer to make up the difference. If the market price is higher than the strike price, then the consumer receives the difference.

Another important aspect of VPPAs is the ability for the power producer to sell Renewable Energy Certificates (REC) directly to the consumer on a bilateral basis. RECs are environmental attribute certifications that allow consumers to make claims about their specific RE purchases in furtherance of their RE goals. Currently, a power producer can only sell RECs from a power plant to the energy exchange, and not directly to consumers. This impedes Data Centres in helping achieve India’s decarbonization goals, along with stumping growth of the corporate RE

market in India.

The regulation of CfDs is still an open discussion in India. CFDs would also require an almost perfectly functioning power market in terms of efficiency and liquidity- an objective that requires cross-regulatory attention on clarifying and resolving the path forward for CfDs in India.

Therefore, MeitY should, through this policy, enable the use of Virtual Power Purchase Agreements (VPPAs) and support the direct transfer of renewable energy certificates to end-consumers.

Establishing the National Fibre Authority will encourage the infrastructure that can reduce fibre cuts. Lower prices and higher quality services for the customers can be achieved through this authority by promoting competition. An ‘open access pricing model’ can be implemented under which all service providers are permitted to access fibre cable infrastructure on reasonable terms. For example, in Frankfurt (Germany), all service providers are charged EUR 1 per meter per year for a fibre pair and EUR 4 per meter per year to put a cable in their duct.

Incentives

Fiscal Incentives

According to the draft Data Centre policy released by the Ministry of Electronics and IT (MeitY), a Data Centre Incentivization Scheme (DCIS) will be formulated by the Government of India which would specify the intended beneficiaries, applicability criteria and fiscal and non-fiscal incentives for the sector. The incentives will surely make the Indian services globally competitive but there are no applicability criteria for availing these incentives. The incentives must be linked with the adoption of the standard and highest performance including the lowest PUE (power usage effectiveness), high-quality standards, adoption of green energy etc.

Example: State governments in the US have slashed the property and sales tax rates on power infrastructure, electricity and equipment to encourage the establishment of data centres, subject to a certain threshold of investment and employment. Similarly, data centres in Florida fall under the Florida Enterprise Zone incentives programme having a qualified target industry tax refund. Under this policy, data centre companies creating high wage jobs are eligible for tax reimbursements on their corporate incomes, sales, and insurance premiums. Sweden has also cut down the tax rate on electricity by 97 percent.

Making India ready for establishing data centres

1) Regulatory and Policy Environment: Data Centre services are not well defined in India. Data centres in India today have to obtain an OSP (Other Service Provider) registration from DOT (Department of Telecom). The registration is mandatory for every data centre established at any location according to the guidelines. The OSPs are bound to share the data with the security agencies. The term security agencies is not defined which makes it difficult for the data centre operator to share the data. There is no clarity on whether the data centres can receive broadband connectivity without getting an ISP license or some other telecom license apart from the OSP registration.

On one hand, the regulation says “OSP may have Internet connectivity from the Authorized Internet Service Provider'' and on the other “The company shall take internet connection from the authorized service provider only and it will use internet telephony only to the extent it is permitted by the ISP or authorized service provider” as detailed in clause 1.14 of the licence agreement of “Internet with telephony”. Hence, there needs to be clarity around the voice and VOIP usage and licensing regime as telecos are licensed who pay for revenues earned on the usage of spectrum, not separately for voice, Internet and VAS.

2) The quantum of internet exchange through NIXI is only 17 Gbps, which is the first and only neutral internet exchange body in India. All operational ISPs, data centres and content providers must be connected with NIXI for the neutral exchange of domestic internet traffic. It will also save foreign exchange because India has to pay for bandwidth to international service providers whenever traffic goes outside the country. This step will reduce latency and allow the users to access the content much faster by deleting multiple international interferences.

3) Cloud Policy: The majority of IT is running in the cloud or on SaaS (Software-as-a-service) technologies but India doesn’t have separate legislation which deals with the legal issues arising out of cloud computing like privacy and confidentiality. National Digital Communication Policy 2018 encourages the establishment of India as a global hub of cloud computing, content hosting and delivery. For this, the government can follow the recommendations given by TRAI. Some of them are:


a) There should be a registered Industry body for cloud services of which all the Cloud Service Providers (CSPs) can become a member above a threshold value.


b) The industry body will prescribe the Code of Conduct of the functioning of the members. The guidelines will specifically include definitions, OoS parameters, billing models, data security, dispute resolution framework, model SLA, disclosure framework etc.


c) DoT can issue directions to this registered industry body regarding the functioning and procedures to be followed. DoT can also withdraw or cancel the registration of industry bodies.

What are the major conditions or restrictions?

1) In India, only 1.1 in every 100 inhabitants have access to fixed broadband which is due to its territorial expanse and the consequent challenges. Due to the lowest average internet speed in APAC and expensive data costs, broadband penetration is less in India. The National Optic Fiber Network and NeGP programme is still a hope and a step in the right direction. But if the above problem persists, it will be difficult for India to become a favourable destination for establishing data centres.


2) To increase the competition, India must allow new technology like DSL, Terrestrial, cable modem, optical fibre, power lines, satellite or any of the wireless technologies available. India also needs a better Data Privacy, Security, IPR and Broadband policy.



Concluding Remarks

Why will Investment increase?

With the advent of technology, the focus is now shifting towards hyper-scale developments which will attract large commercial and industrial developers to invest in the establishment of data centres. Large sovereign and pension funds who earlier invested in yield assets are today looking forward to investing in data centres as a potential yield investment. Thus, changing perception as an alternative real estate asset and the creation of large platforms between operators and investors are the major reason behind this assumption.

Till now, operators have been buying and building everything on their own and even if they buy the land from the government, the entire cycle for acquisition, approvals and compliances will delay the whole process. Therefore, there is an urgent need for a faster go-to-market strategy or build-to-suit models on the civil side. The building methods also need to be defined as in India data centres are built on the base of concrete structures whereas European and North American data structures are built out of steel and cladding. All the power sources must be tested and commissioned. The majority of Indian data centres are currently developed as vertical builds but modern methods of construction and modularisation must be considered.


Author's Biography

I am Ritwik Mehta, a country leader at UNMGCY (United Nations Major Group for Children and Youth) and a Member of the Board of Directors at Sakonsa Organisation. I have two years of experience in the field of public policy research and digital marketing. I love participating in political debates.