West and South India drive 89% of server demand

• While infrastructure demand remains concentrated in a handful of large metros, enterprise activity in manufacturing, BFSI, healthcare, e-commerce, media, education, and government is expanding in smaller cities.

West and South India accounted for over 89 per cent of the country’s server demand and 77 per cent of storage revenues in the third quarter of 2025, propelled by hyperscalers and domestic data center providers, according to IDC’s India Quarterly City-Level Server and Storage Trackers.

At the same time, accelerating adoption of cloud, AI, and edge computing is pushing deployments beyond major metros into Tier II and Tier III cities, signaling a shift toward more distributed, regionally deployed digital infrastructure.

IDC said that while infrastructure demand remains concentrated in a handful of large metros, enterprise activity in manufacturing, BFSI, healthcare, e-commerce, media, education, and government is expanding in smaller cities.

As workloads grow more data-intensive and latency-sensitive, enterprises are increasingly deploying regional and edge infrastructure to deliver services closer to end users, prompting data center operators and vendors to reassess city-level strategies and invest beyond Tier I hubs.

Why Tier II and Tier III cities:

• Sectoral push: Rising investments from manufacturing, NBFCs, healthcare, e-commerce, OTT, education, and government are forcing edge buildouts. Data-heavy applications require regional hosting to cut latency and boost performance.
• Policy tailwinds: Central and state governments are promoting data center expansion outside Tier I through tax incentives, faster approvals, lower real estate costs, and dedicated DC zones. The upcoming National Data Center Policy is expected to accelerate Tier II/III investments with stronger incentives and improved financing support.

Challenges

• Physical and network constraints: Smaller cities face inconsistent power and connectivity, a maturing vendor ecosystem, longer procurement cycles, limited specialized expertise, and slower maintenance response.
• Talent and adoption hurdles: A smaller pool of skilled data center professionals and slower uptake of advanced digital technologies—driven by lower tech awareness and capability gaps—remain headwinds.

“India’s Tier II and Tier III cities are emerging as the next growth frontier for enterprise infrastructure, driven by enterprise expansion, government policy, digital adoption, and cost–quality advantages over metros. However, sustaining long-term growth will require technology providers to investment in customer education, workforce training, and building robust security/compliance capabilities,” said Dileep Nadimpalli, senior research manager, IDC Asia Pacific.