Investing in the AI Supercycle: Why Data Center Cooling is India’s Next Growth Frontier

June 2, 2026 Posted by India Briefing Written by Archana Rao Reading Time: 6 minutes

India is expected to expand its installed data center capacity from approximately 1.5 GW in 2025 to more than 4.5-6.5 GW by 2030. To support this expansion and the deployment of next-generation AI infrastructure, the data center cooling industry, currently valued at around US$1.8 billion, is projected to grow at an annual rate of 9-10 percent through 2032.

Benchmark India’s data center locations for cost, power, and sustainability.

Growing adoption of cloud computing, artificial intelligence (AI), digital services, and data-intensive applications continues to reinforce India’s position as one of the leading data center markets in the Asia-Pacific (APAC) region. According to a recent market report, APAC’s operational data center capacity expanded by more than 1.5 gigawatts (GW) in 2025, representing a 13 percent year-on-year increase.

However, the rapid expansion of data center infrastructure has also intensified concerns around its environmental footprint. As facilities become larger and more technologically advanced, operators are consuming increasing volumes of critical resources, particularly electricity and water, to support computing workloads and maintain optimal operating conditions.

These challenges have elevated cooling from a supporting function to a strategic priority and investment opportunity within the data center ecosystem, driving the emergence of a specialized data center cooling industry. The segment is focused on developing energy-efficient and sustainable cooling technologies that can reduce resource consumption, improve operational efficiency, and support the long-term growth of digital infrastructure.

What is a data center?

Compare Indian states for data center investment readiness and incentives.

A data center is a specialized facility that stores, processes, and distributes digital information using large numbers of servers, storage devices, and networking equipment. It serves as the core infrastructure that powers digital services such as cloud computing, online banking, e-commerce, video streaming, AI, and enterprise applications.

How does a data center work?

The operation of a data center typically follows four steps:

User request: A user initiates an action, such as watching a video, accessing an application, or asking an AI chatbot a question.
Data transmission: The request travels through the internet to the data center, where networking systems direct it to the appropriate servers.
Data processing: Servers retrieve, process, and analyze the required information before preparing a response.
Response delivery: The processed data is transmitted back to the user, enabling smooth video playback, application access, or real-time AI-generated responses.

To support these operations, data centers rely on extensive infrastructure, including the following:

Continuous power supply and backup generators
Cooling systems to prevent servers from overheating
HVAC systems to regulate indoor temperatures
Network connectivity and telecommunications infrastructure
Physical and cybersecurity measures to protect data and ensure uptime

Types of data centers

Data centers are designed to meet different business and technology requirements. They can vary based on ownership, operational model, workload type, security needs, and performance requirements.

Broadly, data centers are categorized into several types.

Data centers are also classified according to their reliability and redundancy levels under Tier I to Tier IV standards. Higher-tier facilities offer greater uptime, backup systems, and fault tolerance, making them suitable for mission-critical operations where service interruptions are unacceptable.

India’s data center market: An overview

Map demand, incentives, and partners in India’s cooling technology market.

India’s data center industry is fueled by rising cloud adoption, AI workloads, digital transformation initiatives, and regulatory requirements around data storage. According to an assessment by the Council on Energy, Environment, and Water (CEEW), India’s installed data center capacity stood at approximately 1.5 GW as of mid-2025. It is projected to reach 4.5-6.5 GW by 2030.

As of 2026, roughly 65 percent of data centers are located in six regions in the country.

Region/location	City-wise total IT capacity	Number of operational data centers
Delhi-NCR	115 MW	38
Kolkata	16 MW	9
Mumbai	650 MW	46
Hyderabad	58 MW	28
Bengaluru	101 MW	31
Chennai	289 MW	33

Source: CEEW

Environmental risks and sustainability challenges

This rapid expansion of the data center sector has intensified concerns about its environmental impact. Data centers require large amounts of electricity to power servers and cooling systems, while many facilities also consume significant volumes of water to regulate operating temperatures. As AI and high-performance computing workloads increase, these resource requirements are expected to rise further.

Plan your India expansion with on-the-ground market intelligence.

Prolonged heatwaves, water scarcity, and extreme weather events can increase cooling costs, strain local infrastructure, and disrupt operations.

These challenges are prompting operators to prioritize climate-resilient site selection, energy-efficient cooling technologies, renewable energy sourcing, and disaster recovery planning. As a result, sustainability and environmental risk management are becoming central considerations in India’s next phase of data center development.

Sustainable cooling: A critical enabler of India’s data center growth

Efficient cooling has become one of the most important operational and sustainability priorities for data center operators. Cooling systems play a vital role in maintaining the performance, reliability, and lifespan of data center equipment. Since servers and networking hardware generate substantial heat during operation, inadequate cooling can lead to reduced efficiency, equipment failures, and service disruptions.

The challenge is becoming even more pronounced as AI and high-performance computing (HPC) applications require denser computing environments with significantly higher thermal loads.

Expanding market opportunities

The increasing digitalization of economies is creating strong growth prospects for the critical power and cooling industry. According to a market report by Mordor Intelligence, the global critical power and cooling market was valued at approximately US$28.2 billion in 2023. It is projected to exceed US$58 billion by 2032.

In India, the data cooling market is estimated at around US$1.8 billion in 2023 and is expected to grow at an annual rate of 9-10 percent through 2032.

This growth is being supported by continued investments in data centers, government-led digital initiatives, smart city development, telecom network expansion, and rising demand for always-on digital services.

Operations cost and energy efficiency requirements for India’s data center

Power remains the single largest operating expense for data centers in India, accounting for nearly two-thirds of total operating costs. Beyond running servers and storage systems, operators must also invest heavily in cooling infrastructure, backup power systems, maintenance, security, and network connectivity to ensure uninterrupted service delivery.

As AI workloads and high-density computing environments become more prevalent, cooling is emerging as a critical cost center, often representing 15-20 percent of operating expenditure.

Modern cooling technologies not only improve thermal management but also deliver measurable financial benefits through lower resource consumption, improved infrastructure utilization, and reduced maintenance requirements.

Commercial benefits of cooling mechanism for data center operators in India

As power densities rise and sustainability requirements become more stringent, cooling efficiency is emerging as a key competitive differentiator.

1. Lower operating expenditure: Modern cooling solutions, including liquid cooling, free cooling, and AI-enabled airflow management, consume significantly less energy than traditional air-conditioning systems. By improving heat removal efficiency, operators can reduce electricity consumption, lower utility expenses, and improve overall operating margins.

2. Improved energy efficiency and PUE performance: Cooling optimization plays a critical role in improving Power Usage Effectiveness (PUE). Lower PUE values indicate that a greater proportion of energy is being used for computing rather than supporting infrastructure. Improved energy efficiency can generate substantial cost savings over the lifecycle of a facility.

3. Reduced water and resource costs: The adoption of dry-cooling and hybrid-cooling technologies helps reduce dependence on water-intensive cooling systems. For operators in water-stressed regions, this can lower utility costs, reduce exposure to resource constraints, and strengthen environmental, social, and governance (ESG) performance.

4. Lower maintenance costs and longer asset life: Effective thermal management reduces wear and tear on servers, storage systems, GPUs, and power infrastructure. This helps minimize equipment failures, lower maintenance expenditure, extend asset lifecycles, and improve returns on capital investments.

Policy support and investment opportunities in India’s data center cooling industry

State governments are increasingly recognizing the strategic importance of cooling technologies as they seek to balance rapid digital infrastructure expansion with sustainability objectives. In a notable development, the Karnataka government is evaluating a range of incentives for companies that develop next-generation cooling solutions capable of reducing water consumption, improving energy efficiency, and supporting renewable energy integration.

Identify the Optimal Investment Destination with Cross Country Competitiveness Benchmarking ⟶

According to news reports published on May 28, 2026, Karnataka plans to incorporate these measures into its forthcoming data center policy as part of a broader strategy to promote sustainable digital infrastructure. The state is prioritizing low-water cooling technologies, given that a conventional 100 MW data center can consume nearly 2 million liters of water per day. Policymakers are also expected to encourage technologies that increase server density, improve energy efficiency, reduce cooling-related resource consumption, and lessen reliance on fossil fuel-based power sources.

CLICK HERE: Karnataka Global Investor Meet 2025 and Industrial Policy 2025-30

These initiatives could create substantial opportunities for cooling technology providers and infrastructure investors. As data center operators work to reduce operating costs, strengthen ESG performance, and support increasingly intensive AI workloads, they are accelerating investments in advanced cooling systems. Companies offering liquid cooling, dry-cooling solutions, AI-enabled thermal management, renewable-powered cooling infrastructure, and water-efficient technologies are likely to benefit from both expanding market demand and emerging policy support.

About Us

India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Vietnam, Indonesia, Singapore, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.

For a complimentary subscription to India Briefing’s content products, please click here. For support with establishing a business in India or for assistance in analyzing and entering markets, please contact the firm at india@dezshira.com or visit our website at www.dezshira.com.