The Policy Push: Why the Government is Betting on Tier-II Cities

During the 2025 Union Budget, India’s Finance Minister Nirmala Sitharaman unveiled a national framework aimed at expanding Global Capability Centers (GCCs) beyond metro hubs – right into the heart of India’s Tier-II cities.

Now, here’s why that’s a big deal: Of the 1,700 GCCs in India, only 7% are in Tier-II cities. That’s a massive untapped opportunity. But some forward-thinking companies have already taken the plunge. Big names like Diageo, Calsoft, Flex, and Kraft Heinz have set up shop in cities like Kolkata, Mangalore, Ahmedabad, and Coimbatore.

The idea of leveraging Tier-II cities isn’t new, but the pandemic changed the game. It proved that these cities have the talent and infrastructure to support large-scale business operations. Remote work showed us that companies could tap into talent anywhere. And let’s be real – Tier-II cities offer professionals a better quality of life. Less congestion, shorter commutes, lower costs, and improved work-life balance are becoming deal-breakers for talent.

We dug deep into this for our India Tier-II Report 2024, ranking cities based on factors like IT and BPM skill concentration, infrastructure readiness, safety, workplace diversity, tax incentives, and climate resilience. The Union Budget’s national framework aligns perfectly with these insights. It aims to boost talent availability, reform building laws, improve infrastructure, and drive industry collaboration—all critical for a more distributed and resilient economy.

Why Tier-II, and Why Now?

This shift isn’t just about saving costs anymore. It’s about sustainability, talent access, and long-term business resilience. Yet, companies still flock to Tier-I cities, driving up real estate and operational costs by 60-80%. Attrition rates hover around 15.2%, infrastructure is stretched thin, and living conditions are worsening due to rising rents and water shortages. If businesses want to future-proof themselves, it’s time to look at Tier-II cities as serious contenders.

What makes the Tier-II cities stand out? Three key factors:

1. A Strong Talent Pool: Cities like Ahmedabad, Kolkata, Jaipur, and Coimbatore are emerging as powerhouses for Engineering R&D (ER&D) and IT-BPM. With lower attrition rates and specialized talent pools, these cities are evolving into their own innovation hubs.
   
   
2. Better Quality of Life: Affordable housing, lower pollution, and shorter commute times make these cities an attractive alternative for professionals. This shift reduces migration pressure on metro cities and helps companies retain top talent.
   
   
3. Enhanced Connectivity: The government is investing heavily in rail, road, and air connectivity. These upgrades make Tier-II cities more accessible, allowing businesses to operate efficiently without the premium costs of metros.

What Should the Policy Focus On?

For this shift to work, the government needs to move beyond just offering financial incentives. The national GCC framework should tackle structural challenges head-on:

• Infrastructure Development: Fast-tracking digital and physical infrastructure—think high-speed internet, expressways, and regional airports—to seamlessly integrate Tier-II cities into business networks.
  
  
• Talent Ecosystem Growth: Strengthening industry-academia partnerships, rolling out advanced skilling programs, and creating innovation clusters to foster a steady talent pipeline.
  
  
• Regulatory Easing: Simplifying compliance processes and land-use regulations to make it easier for businesses to set up and scale quickly.
  
  
• Financial Incentives: Offering tax breaks, capital subsidies, and payroll support to encourage companies to establish GCCs in Tier-II cities.
  

Beyond these basics, the government needs to double down on innovation and Intellectual Property (IP) creation. Establishing incubation hubs, incentivizing R&D, and providing tax concessions for start-ups could be game-changers. A Comprehensive Central Enactment, similar to the SEZ Act of 2005, could also ensure long-term policy stability. And introducing direct tax incentives—similar to Sections 10A and 10AA—could give businesses the financial push they need to expand beyond metro cities.

GIFT City: A Case Study in Smart Growth

A great example of what’s possible when policy and infrastructure align is Gujarat International Finance Tec-City (GIFT City). As India’s first smart city and international financial hub, it has attracted over 700 companies, including JPMorgan and HSBC, thanks to a structured approach—world-class infrastructure, regulatory ease, and targeted tax incentives.

Though originally designed for financial services, GIFT City’s success shows how similar frameworks could drive growth across industries in Tier-II cities.

The Road Ahead: A New Growth Cycle for India

For India to hit its USD 7 Tn economy target by 2030, this can’t just be a government-led initiative. It’s time for businesses, policymakers, and academia to collaborate and build an ecosystem where talent can thrive locally while contributing to national growth.

At this point, it’s not a question of if Tier-II cities will lead India’s next growth wave. It’s about how soon we’ll get there.