In view of the increasing significance of data, data centers, and the associated regulatory requirements of data localization, the Legislature has also brought about various reforms such as the Digital India programme in order to regulate the entire data industry. However, a comprehensive framework specifically aimed at regulating the construction and operation of data centers is still needed.

Concept of Data Centres

A data centre is a physical facility that houses all virtual activities and is used to store applications and data, for edge computing, hosting content, and delivering cloud-based services. Data centres cover the three sectors of property, energy, and technology, and thus, various segments such as real estate and construction, hardware equipment, utilities (power, water, cooling), networking, and software services all come within their ambit.

National and Global Context

The last few years have seen rapid growth in the digital industries such as gaming, Edtech, OTT platforms, e-commerce, etc., in India. These industries are heavily dependent on data centre support. Further, the fast growth in cross-border transactions and the digitisation of transactions has impelled the Indian government to implement data localization mandates in order to ensure data protection and sovereignty. Consequently, global players are now looking to invest in establishing data centres in India, which makes it important to examine the facilities offered to the data centre industry by leading nations in this sector.

United States

Different states in the US provide different incentives to investors for setting up data centres. For example, Alabama exempts data centres from sales and property taxes, Hawaii offers job creation incentives, Florida offers industry tax refunds through the Florida Enterprise Zone, and so on.

China

China is the world leader in internet consumption; hence, data centres have grown there rapidly. At present, it is placed in the second position in the market capacity of data centres, right after the US. The Chinese Government has incentivised the construction of data centres through the allocation of land for the same and making it available at favourable prices. China’s National Development and Reform Commission has launched a project called “Eastern Data Western Calculation,” which aims to move the data collected from developed regions of the country to less developed ones.  Apart from this, several local governments in the central and western regions of the country offer tax benefits for setting up data centres.

Singapore

Singapore has several facilities, such as a country-wide fibre network, a corporate tax exemption for a data centre company under the Pioneer Certificate Incentive, a concessionary tax rate of 5% or 10% for a company under the Development and Expansion Incentive, on-site power plants, dual power feeds, etc. to incentivise the setting up of data centres.

Regulatory Framework in India

The size of the digital economy in India is estimated to grow from $ 200 billion in 2017-2018 to $ 1 trillion by 2025.

Currently, there is no single legal framework regulating the construction and operation of data centres in India. Several guidelines have been issued from time to time by various government departments relating to the data centre industry. One such draft guideline named “Data Centre Policy 2020” was published by the Ministry of Electronics and Information Technology and proposed to give the status of “infrastructure” to data centres, putting the data centre industry on the same pedestal as roads, railways, and power, which would enable them to avail long-term credit from domestic and international lenders at easier terms. Some of the other salient features proposed by this policy are:

• Data centres are to be declared an Essential Service under “The Essential Services Maintenance Act, 1968” to enable continued service during calamities or crises.
• Data centres are to be recognised as a separate category under the National Building Code of India 2016 as they require different norms than other commercial spaces.
• Four Data Centre Economic Zones (DCEZ) are proposed to be set up by the Government of India, which will host an eco-system of both non-IT and IT infrastructures such as hyper scale data centres, cloud service providers, IT companies, and R&D units.
• Incentives for setting up data centres will be available to both private sector and public sector Data Centre Parks/Data Centre Developers and Data Centre Operators.

The Telecom Regulatory Authority of India (TRAI) had also published a consultation paper on “Regulatory Framework for Promoting Data Economy Through Establishment of Data Centres, Content Delivery Networks, and Interconnect Exchanges in India,” which provides a list of clearances required to build a data centre, some of which are listed below:

• Environment Clearance from the Ministry of Environment, Forestry and Climate Change
• Consent to Establishment from the Metropolitan Development Authority and Central Pollution Control Board
• Provisional Fire No Objection Certificate (NOC) from the State Fire and Rescue Services/National Fire Protection Association
• Storm Water Permits and Sewage Discharge Approval from the State Pollution Control Board
• Tree Cutting NOC from the Central Pollution Control Board: Forest Department
• Drainage/Garden NOC from the Metro Water Supply and Sewage Board
• Building Permit/Approvals, and Commencement Certificate from the Metropolitan Development Authority
• Telecom Permit from the state’s Service Provider/Controller of Communication Accounts
• Water Supply from Metro Water Supply and Sewage Board
• Power Connection Feasibility, Design, and Sanction from the State Electricity Board
• Traffic Approval NOC from the Commissioner of Traffic
• NOC for High-Rise Structure from Airport Authority of India
• Registration with DIC from the Director of Industry
• IEM Registration with the Ministry of Commerce
• 220kV power connection cable laying from a substation to project premises and 220kV power connection substation testing and charging from the State Electricity Board
• Form V Approval (Labour) from the Labour Department: State Government
• Plinth Checking Certificate from the Metropolitan Development Authority
• Electricity Safety License from the Central Electricity Authority/Chief Electrical Inspector to the Government/Public Works Department Electrical Inspector
• Elevator Permits and Certification from the Central Electricity Authority/Chief Electrical Inspector to the Government/Public Works Department (PWD) Electrical Inspector
• Diesel Generator System Approval from the Central Electricity Authority/Chief Electrical Inspector to Government/PWD Electrical Inspector
• High Speed Diesel (HSD) License from the Petroleum and Explosives Safety Organization/Chief Controller of Explosives Department/PWD: Electrical Inspector
• Lift Operating Permits from the PWD Lift Inspector
• Occupancy Certificate from the Metropolitan Development Authority
• Completion Certificate from the Metropolitan Development Authority
• Consent to Operate Certification from the Central Pollution Control Board
• Preliminary Explosive License and Final Explosive License for HSD from Petroleum and Explosives Safety Organization/Chief Controller of Explosives Department

Several states have promulgated their own data centre policies, such as Maharashtra, through its IT/ITES Policy of 2015; Telangana, through its Telangana Data Centre Policy of 2016; Uttar Pradesh, through the Uttar Pradesh Data Centre Policy of 2021; Tamil Nadu, through the Tamil Nadu Data Centre Policy of 2021; Karnataka, through the Karnataka Data Centre Policy, 2022-27 and West Bengal, through the West Bengal Data Centre Policy of 2021.

Regulatory Framework in West Bengal

On September 6, 2021, the Department of Information Technology and Electronics, Government of West Bengal, introduced the “West Bengal Data Centre Policy 2021,” which will be valid for a period of five years from the date of the notification.

The nodal agency for the proper implementation of this policy is WBEIDC Limited (WEBEL), and they will promote it at both a national and international level.

In 2022, it was announced that the Bengal Silicon Valley Tech Hub being developed at New Town, Rajarhat, is expected to become the main area for the development of the data centre units in the state. The biggest advantage for West Bengal is that the new submarine cable landing station is being developed at Tajpur in West Bengal and ancillary units will be created in the two electronics manufacturing clusters at Kalyani and Falta for supporting the data centres.

Data centre organisations will be classified as “Essential Services,” as has also been proposed in the National Policy.

In order to attract data centre companies to set up data centres in West Bengal, various other incentives have been proposed in the policy. The companies setting up data centres in West Bengal will be entitled to a hundred per cent exemption of stamp duty and registration fees for any transaction relating to the setting up of data centres in the state, and there will also be a waiver of electricity duty from the commencement of commercial activities up to five years.

Among the non-financial incentives, the data centres will also be entitled to:

• Dual-power grid networks to ensure electricity supply without interruption
• “Industrial” status is given to electricity supplied to data centres
• Affordable power backup infrastructure
• Companies who wish to establish captive firms will get single-window approvals and permits
• Quality power and internet facilities are to be provided to Edge Data Centres being set up at various IT parks or industrial parks
• Uninterrupted Power Supply and Internet Connectivity
• Uninterrupted and high-speed water supply
• A support system to be provided to set up captive water treatment plants for the Data Centre Parks
• Extra FAR for data centre buildings.

West Bengal is becoming a lucrative option for setting up new data centres, and various corporate houses such as Reliance Jio, Adani Enterprises, and Hiranandani Group are also in the process of setting up data centres in the state. Several factors need to be taken into account before setting up a Data Centre and real estate is a significant one among them because data centres are one of the most expensive real estate investments. Extensive due diligence should be performed on the project site to ensure that it has a clear title and easy access to transportation and other utilities. In addition to this, all the relevant licenses and permissions should be obtained from the competent authorities to avoid legal issues in the future. Considering the progressive policies implemented by governments at both the central and state levels, it will be interesting to see how the data centre industry develops and how these policies affect it.