The edge advantage for data centres in tier-2, tier-3 cities

Nearly 5-7% of India’s data centre capacity is located in tier-2 and tier-3 cities, and the next surge in growth is expected to come from smaller cities.

DQI Bureau
New Update

Data centre

As India secures its 13th position globally in the data centre market, it is imperative that we delve into the reason behind this transformative change. With 138 data centres, and a projected compound annual growth rate (CAGR) of 5.84%, the anticipated market size of approximately US$9.27 billion by 2027 underscores a burgeoning need for efficient and accessible data storage and processing capabilities. 


This surge is not confined to major metropolitan areas alone. Tier-2 and Tier-3 cities are also witnessing a significant uptick, giving rise to the innovative concept of Edge Data Centres. 

In a world where businesses and individuals alike generate and consume vast amounts of data, the evolution of these data centres takes centre stage in reshaping India's digital future.

Understanding edge data centers

The concept of “Edge” refers to a decentralized approach to data processing. These data centres are strategically positioned closer to the geographical location of end-users, ensuring lower latency and enhanced performance for data-intensive applications. This concept is particularly significant in the Indian context as it aligns with the nation’s digital aspirations and the need for the rapid adoption of emerging technologies in smaller towns as well. 


Therefore, various Information and Communications Technology (ICT) companies are investing in edge data centres that provide colocation services and cloud interconnect. These small facilities enable the next generation of low-latency transmission for evolving Internet of Things (IoT) applications. Validating this growing momentum, the Edge Data Centre Market size is projected to cross US$67 billion by 2035 globally.

Rise of tier-2 and tier-3 cities

Tier-2 and Tier-3 cities are increasingly becoming hotspots for economic development and technological growth. According to reports, nearly 5-7% of India’s data centre capacity is located in tier-2 and tier-3 cities, and the next surge in growth is expected to come from smaller cities, thereby, underscoring a notable potential for substantial growth. 

As these cities witness a surge in digital adoption, driven by factors such as improved internet connectivity, government initiatives, and the proliferation of smartphones, the demand for data services has skyrocketed. 


Sectors that are moving to Tier-2 and Tier-3 cities, like E-commerce, Healthcare, Education, FinTech, are recognizing the need for robust data infrastructure and collaborations with ICT companies that can help them meet the expectations of their digitally savvy customers.

Key drivers

There are several key drivers for edge data centers.

Reduced latency: One of the primary factors behind the surge in edge data centres in smaller cities is the imperative need for reduced latency i.e. the time it takes for data to travel between the source and its destination. As applications and services increasingly rely on real-time data processing, the geographical proximity of edge data centres to end-users in tier-2 and tier-3 cities becomes a game-changer. By reducing the latency speed, data centres of ICT companies can elevate the user experience, enabling seamless and prompt interactions on digital platforms.


Cost efficiency: Tier-2 and tier-3 cities offer an appealing prospect for businesses aiming to establish edge data centers, primarily due to lower operational expenses such as real estate, manpower, and maintenance costs. This potential for cost efficiency allows organizations to leverage their infrastructure investments effectively while enjoying high-performance data processing capabilities. 

However, it's crucial to conduct a thorough assessment, considering connectivity and power infrastructure costs, to ensure a well-balanced approach that maximizes financial benefits.

Data localization: Data localization mandates are fueling the rise of edge data centres, driven by a growing emphasis on data security and privacy. Edge data centres, strategically positioned in smaller cities, offer a solution to meet these regulations by keeping sensitive data within defined geographic boundaries. This localized approach not only ensures compliance with data sovereignty rules, but also resonates with businesses prioritizing data integrity and security. 


Companies in the ICT sector, implementing cutting-edge technologies, secure networks, and streamlined manageability for advanced threat protection and encryption, are poised to excel in this regulatory landscape.

Government initiatives: Favorable initiatives for these players, play an important role in the expansion of edge data centres in tier-2 and tier-3 cities across India. Recently, RailTel, a central government PSU, unveiled plans to establish edge data centres at railway premises across 102 locations, focusing on tier-2 and tier-3 towns. This strategic move aims to lead the digital transformation in smaller cities. 

Moreover, state governments are actively contributing to this growth momentum by offering fiscal and non-fiscal incentives. States like Maharashtra, Karnataka, Tamil Nadu, Uttar Pradesh, and Telangana have implemented conducive real estate policies that significantly reduce upfront and operational costs for data centre setups. 


For example, the Uttar Pradesh government’s data centre policy includes capital subsidies, interest subsidies, land subsidies, dual power grid supply, and stamp duty exemptions, aiming to attract substantial private investments in Noida’s data Centre infrastructure. 

Karnataka, too, is keen on developing a “globally competitive” data centre industry within its borders. Additionally, the central government is planning to introduce a data Centre park policy, underlining a concerted effort to propel India’s data infrastructure to new heights.

Navigating challenges and opportunities

While the rise of edge data centres in small towns presents numerous opportunities, it also comes with its own set of challenges. Infrastructure development, skilled workforce availability, and potential connectivity issues are some hurdles that need to be addressed. 


However, these challenges along with several government initiatives open up opportunities for investments, job creation, and skill development, contributing to the overall economic growth of these cities.

Overall, the growing demand for edge data centres in tier-2 and tier-3 cities signifies a paradigm shift in the digital landscape. As businesses and individuals increasingly rely on data-intensive applications, the strategic placement of data Centres becomes imperative. 

This is where small towns become crucial hubs for data infrastructure, playing a pivotal role in shaping the future of digital economy. As the trend continues, the collaboration between government, private sector, and local communities will play a pivotal role in realizing the full potential of edge data centres, leading to innovation, economic growth, and a tech-empowered society.

-- Pinkesh Kotecha, MD and Chairman, Ishan Technologies.