India's digital transformation market is projected to reach $229.59 billion by 2029, driven by rapid adoption of artificial intelligence (AI), cloud computing, enterprise digitisation, and the expansion of digital public infrastructure, according to a report released on Monday, 10 August. The findings position India as a potential global hub for AI-ready data centre infrastructure.

Market Growth and Investment Pipeline

According to the report by smallcase, India's digital transformation market is estimated to grow at a compound annual growth rate (CAGR) of 20.63–32.1 per cent through 2029. The country's operational data centre capacity is expected to cross 2 GW by the end of 2026, up from approximately 1.6 GW currently, backed by more than $30 billion in confirmed capital expenditure and an investment pipeline of nearly $60 billion.

By 2030, operational capacity could expand to 4.5–7 GW, with some industry estimates placing the upper limit at around 7.5 GW as AI and cloud investments accelerate. The Ministry of Electronics and Information Technology (MeitY) has projected total investment in India's data centre ecosystem to exceed $200 billion, with nearly $70 billion already at various stages of construction.

AI as the Primary Demand Driver

The report identifies AI as the single biggest driver of data centre demand in India. The country accounted for 46.2 per cent of AI activity across the Asia-Pacific region and recorded more than 82.3 billion AI transactions in the second half of 2025 — figures that underscore the scale and pace of AI adoption at the enterprise and consumer level.

This comes amid a global race to build AI-ready infrastructure, with India's large engineering talent pool and expanding digital public infrastructure giving it a structural edge over several regional peers.

Key Cities and Infrastructure Outlook

Mumbai remains India's largest data centre market, while Hyderabad is emerging as a significant alternative, owing to lower infrastructure costs, stronger connectivity, and reduced seismic risk. The geographic diversification signals a maturing market moving beyond a single-city concentration.

Notably, the report projects that India's data centre ecosystem could generate nearly nine million jobs by 2030, spanning direct and indirect employment across engineering, manufacturing, logistics, and technology services.

Challenges That Could Slow the Momentum

Despite the bullish outlook, the report flags several structural challenges: fragmented regulatory approvals, shortages of specialised AI infrastructure talent, limited fibre penetration, and the need for advanced cooling technologies. These constraints, if unaddressed, could bottleneck the very capacity expansion the investment pipeline is designed to deliver.

What Industry Leaders Are Saying

Naveen KR, smallcase manager and Senior Director at Windmill Capital, said: 'With an investment pipeline exceeding $200 billion, supportive government policies, a strong engineering talent base and rapidly expanding digital public infrastructure, the country is building the foundation to become a global AI infrastructure hub.' He added that India would need to strengthen power availability, fibre infrastructure, regulatory efficiency, and high-density AI-ready facilities to scale sustainably.

The report's projections arrive at a moment when global hyperscalers and domestic conglomerates alike are committing multi-year capital to Indian data centre capacity — making the next 24 months a defining window for the sector's long-term trajectory.