For much of the 26 years since the beginning of the millennium, India has aimed at becoming a rising economic power by way of first becoming a service centered hub and gradually shifting towards becoming a centre of manufacturing. However, many of these ambitions have hit the wall of geopolitical constraints as New Delhi is forced to navigate one of the most hostile neighbourhoods in all of Asia.
India has historically been both a continental and maritime economy, with both mercantilism and strategic security as well as economic concerns being the driving force behind expansion in both the land and sea domain. While India’s territorial negotiations with its neighbours have yielded positive results, its trade potential remains geographically throttled as it is unable to exploit some of the most lucrative overland trade corridors.
Adversarial neighbouring countries such as China and Pakistan which share a border with each other also seek to dominate markets in what New Delhi traditionally considers a more amenable lot amongst its neighbours such as Bangladesh, Nepal, and Sri Lanka.
However, the unseen cost of these frictions is unrealised potential trade volume, underdeveloped and under-serviced infrastructure as well as the inability to mitigate effects of economic border shocks for all involved. Economically and strategically the most consequential dispute is in the Himalayas, across the Line of Actual Control (LAC) between China and India.
Due to Beijing’s hostile and assertive posture, the Indian population recognises it more as a volatile national security frontier than a trade artery and major source of wealth as it was during much of the past few hundred years. Paradoxically while the biggest drain on its exchequer for settling payments for imports and military spending aimed at maintaining credible deterrence, China is also New Delhi’s biggest trading partner by value and volume right alongside the US.
According to data from India’s Department of Commerce, the country had a trade deficit of $99.2bn with China in FY2024–2025. While the main cause for this is the nature of the Indian economy and the policy direction its political leadership adopted for much of the late 20th and first two decades of the 21st century, India essentially put most of its eggs into the basket of service and outsourcing sectors - providing cheap white collar labour to Western conglomerates in the technology and finance sectors.
New Delhi’s more recent awakening to the strategic significance of the manufacturing sector happened at a time when China had already consolidated over four decades of expertise, thus anything short of a technological leapfrogging scenario made Indian entities competing with their Chinese counterparts untenable.
Furthermore, Indian companies have found no significant direct complementarities to Chinese goods and services that they could channel into mutually beneficial arrangements, instead ceding the opportunities for value creation to Western conglomerates that exploited cheap Chinese factory produced goods and the trained but low paid skilled service industry labour of Indian nationals.
Pakistan presents an even bleaker picture, as Islamabad’s claim over the Indian state of Jammu and Kashmir and the constant threat of insurgents supported by Pakistan’s military makes it nearly impossible for a normal bilateral trade relationship to exist.
As India is forced to bypass Pakistan to service its relations and bilateral trade with Afghanistan and former Soviet Central Asian states, the costs increase, thus lowering the profit in what was traditionally the second most important trade artery for India.
Looking north, while India's border with Nepal has been the least concerning in terms of security threats, it hasn’t been entirely untouched by controversies and friction. As is evident from newly elected Nepali Prime Minister Balen Shah’s speech to the Nepali Parliament, in which Shah acknowledged that there is a need for a trilateral engagement between India, Nepal and the UK to resolve the present day territorial concerns, many are the result of British policy during its colonial administration of an undivided India.
However even with the resolution of the dispute, the net beneficiary in trade terms is likely to be Kathmandu as it relies on India for much of its international trade access as well as infrastructure financing, with New Delhi not finding a proportionate route to channel its exports to any desirable destinations via Nepali territory.
Since it also shares a border with China, Nepal has to entertain its trade access and infrastructure funding offers on an equal pedestal as New Delhi, but due to a much better people to people connection and shared cultural affinity, Kathmandu has largely prioritised India over Beijing.
Bangladesh and Sri Lanka, despite being traditionally more amenable to India, have been more volatile in their alignment between India and China, largely reflecting the policy stance and alignment of the governments in power at certain points in time.
Under Sheikh Hasina and her 15 year rule over Dhaka, India was the primary trade partner for Bangladesh, with China only able to extend its influence when India explicitly chose to pass over the opportunity for financing development or exploiting any revenue sources.
However, after Hasina’s ouster in 2024 and the interim government’s lack of a coherent and long term policy vision, things are yet to become clear vis-a-vis the newly elected Bangladesh National Party Prime Minister Tariq Rahman and if he will choose to align with Beijing or New Delhi.
It is possible that Rahman could go an entirely new route of equidistance, which will likely start a race between India and China to court more influence in the country.
One issue in the relationship is India's large number of illegal immigrants from Bangladesh, which has had a measurable impact on the level of unemployment and cost of living for its own population, as demographics in its border regions have begun to change.
The illegal immigration problem is partly the reason behind India being selective about enforcing border control and trade flows to and from Bangladeshi territory, which inherently lowers volume and transshipment potential for India’s own exports.
Similarly, under the government of Sri Lanka’s former president, Mahinda Rajapaksa, Colombo was facilitating Chinese investment and trade access into the country at breakneck speed.
However, after a major economic crisis that saw the Rajapaksa administration ousted from office, Sri Lanka under the incumbent Anura Kumara Dissanayake administration has chosen a more equidistant policy of alignment between India and China.
Unfortunately unresolved disputes over fishing rights and maritime access still leads to minor frictions between the two countries’s maritime constabulary, coastguard and navies on occasion, leading to yet another obstacle in what could be a complimentary, if not healthily competitive co-owned fishing industry.
India’s fast-growing data centre industry is primarily centred around Mumbai. India’s financial capital is one of the fastest-growing markets in the Asia-Pacific region and is likely to grow beyond 1GW of operational capacity by the end of 2026, a recent report by global real estate services provider Cushman & Wakefield says.
However, in the recent past, India’s data centre industry has begun to look beyond Mumbai into cities like Hyderabad, Chennai, Delhi NCR, Pune and Bengaluru.
India boasts of 1.6GW of operational capacity when it comes to data centres, the second-largest market in the Asia-Pacific region. When it comes to the development pipeline of data centres, the South Asian country ranks among the top three markets, with 3.1GW either under construction or proposed, according to the report.
The Cushman & Wakefield report argues that a number of second-tier cities like Hyderabad, Chennai, Delhi NCR and Pune are also fuelling the incremental growth in the Indian data centre industry. In the report, Hyderabad is cited as the leading secondary market in the Asia Pacific and ninth globally. India’s IT hub Bengaluru is also ranked as a tertiary data centre market within the regional data centre landscape.
In India, especially in Mumbai, Hyderabad and Pune, hyperscale demand remains a key driver of expansion. AI workloads and large-scale cloud deployments are increasingly influencing capacity expansion strategies across multiple Indian markets. The report also points to the rise of locations such as Vizag, which is aiming to be a future AI hub, reflecting a larger shift toward scalable markets capable of supporting next-generation digital infrastructure.
The scale of India’s long-term expansion trajectory further reinforces the growth seen to date and that projected. More than 10.5GW of capacity remains at the land stage, reflecting robust future development potential as operators continue to secure sites and prepare for sustained demand. Amidst all this, the Indian market remains structurally underpenetrated, with data centre density at about 943,000 people per MW, indicating major space for further growth. There has further been a decline in vacancy to the tune of 12.9% as of Q4 2025, pointing to sustained absorption of new capacity and strengthening demand fundamentals.
A separate report published by KPMG in late May says that India is facing a fast-changing digital infrastructure storm and is experiencing an exponential shift, propelled by new regulatory requirements for data localisation, which are leading to a robust growth in AI-driven workloads, and the widespread adoption of 5G technology.
According to the KPMG report, these factors have compelled the industry to alter its direction; moving away from tardy progress and into a period of accelerated expansion. As such, KPMG believes that right now, the biggest challenge to scaling up is not a lack of demand but the sheer complexity of meeting the demand. The industry is currently using fragmented service providers who work in silos across the data centre space - be it construction, technology, or cooling, it says. But the market needs to offer a seamless service that covers everything from planning and building to deploying, and operationalising. It also needs to adapt to high-value areas like capital markets, telecom, digital transformation, and ESG frameworks to become a global force in the coming years, KPMG adds.
On the AI readiness gap, KPMG says that older Indian facilities still rely on legacy air-cooling designs that simply cannot handle the intense heat of modern GPU clusters. Upgrading from standard raised floors to more advanced cooling and new power sourcing is not just an engineering headache; it is a massive multi-stakeholder delivery risk, KPMG continues.
Capital efficiency is also a challenge when it comes to India. International investors want to enter India, but they often hit a brick wall of confusing land acquisition laws and state -level power regulations.
Data centres use huge amounts of energy, so meeting global sustainability benchmarks is
crucial. By focusing on efficient power usage and locking down renewable energy agreements, operators align with global ESG expectations. This makes them much more attractive to investors. In addition, India allows 100% Foreign Direct Investment (FDI) under the automatic route for data centres, which lets offshore capital flow smoothly into onshore operations.
KPMG believes that India's digital appetite is massive, backed by favourable government policies and a stable economy. With 1bn internet users and businesses rushing to the cloud, building domestic data centres is now a necessity.
KMPG report, citing industry data, says that the total sector revenue is on track to hit an estimated $45.69bn by 2033. For AI -specific infrastructure, that niche market was worth about $588.6mn in 2024. KPMG expects it to skyrocket to $3.55bn by 2030, growing at a massive
35.1% CAGR.
The Indian data centre market is up for grabs as the window of opportunity is still wide, KPMG says, but it will not stay that way forever. By 2030, the big players are expected to consolidate the market. They already know that simply offering raw real estate is not enough anymore. Integrated partners who can combine complex physical engineering, specialised AI readiness, regulatory mastery and financial structuring into one cohesive lifecycle partnership are best suited to succeed, KPMG says.
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