Small Cities, Big Future: How Tier-II and Tier-III Towns Are Redefining India’s GCC Growth Story

India’s Global Capability Centres (GCCs)—which include R&D hubs, back-office operations, IT support, and innovation units for multinational companies—are undergoing a strategic shift. While Tier-I cities like Bengaluru, Hyderabad, and Mumbai have long been the dominant hubs, a quiet revolution is taking place: Tier-II and Tier-III cities are rapidly emerging as the next growth frontiers for GCCs. A combination of cost savings, talent availability, infrastructure improvements, and proactive state policies is fuelling this transformation.

GCCs Expand Their Horizons

Over the past few years, GCCs have grown remarkably in India. What was once a metro-centric landscape is now diversifying. According to industry estimates, the share of GCCs in smaller cities has increased from about 5% in 2019 to around 7% in 2024. Projections suggest this could reach 15–20% by 2025 and possibly up to 30% within the next few years.

More than 500 new GCCs are expected to emerge in smaller towns by 2026, representing a tectonic shift in how multinational companies approach operations in India. This movement isn’t just about cost-efficiency—it’s about long-term sustainability, de-risking from urban congestion, and tapping into untapped talent pools.

Why Smaller Cities Are Attracting GCCs

1. Cost Advantage

The cost of establishing and operating a centre in a Tier-II or Tier-III city is significantly lower compared to metros. Real estate costs are often 40–60% cheaper. Salaries, electricity, transportation, and living expenses are all lower, allowing companies to stretch their budgets further while offering competitive compensation to local talent.

2. Talent Availability

India produces millions of graduates annually, a large number of whom come from non-metro regions. Engineering, science, commerce, and humanities students in these areas are increasingly skilled, English-proficient, and eager for local opportunities. Many professionals are also willing to return to their hometowns if given the right opportunity, reversing brain drain.

3. Improved Retention Rates

One major concern in metro cities is high attrition. Employees often hop jobs due to competitive environments and rising living costs. In contrast, employees in smaller towns show greater loyalty and lower attrition, with job stability contributing positively to company culture and training ROI.

4. Better Work-Life Balance

Many Tier-II cities offer cleaner air, lower traffic congestion, and an improved work-life balance. This appeals especially to employees starting families or seeking a more peaceful lifestyle. The availability of schools, hospitals, and growing urban amenities has made these cities more livable.

The Role of Policy and Infrastructure

The Indian government, at both central and state levels, has recognized the potential of emerging cities. Incentives in the form of tax breaks, single-window clearances, digital infrastructure, and industrial zones are being actively offered to attract investments.

Smart City initiatives, the AMRUT mission, and regional air connectivity through the UDAN scheme have further improved transport and digital infrastructure. High-speed internet, better roads, new airports, and improved power supply have made many Tier-II cities viable for high-tech operations.

The government is also encouraging the “hub-plus-one” model. Under this strategy, companies maintain their main centres in metros while setting up secondary hubs in smaller cities. This reduces dependency on one location and ensures business continuity in case of disruptions like strikes, natural disasters, or political unrest.

Emerging GCC Hubs

Several cities are becoming magnets for GCC investments:

  • Coimbatore has evolved beyond its textile legacy into a tech and innovation hub.
  • Visakhapatnam is drawing IT firms due to its coastal connectivity and government push.
  • Vadodara and Indore offer industrial heritage combined with a growing startup culture.
  • Jaipur, Mysuru, Nagpur, and Bhubaneswar are developing strong education ecosystems that feed into local employment opportunities.
  • Lucknow, Greater Noida, and Surat are gaining visibility due to improved infrastructure and proactive policies.

These cities are not only attracting back-office operations but also core product engineering, analytics, cybersecurity, and AI development functions.

Economic and Social Impact

The movement of GCCs into non-metro cities has significant ripple effects:

  • Job Creation: Local economies are seeing more formal employment opportunities, especially for youth who previously had to migrate to cities like Bengaluru or Pune.
  • Urban Development: Cities are modernizing through private and public investment, improving roads, schools, hospitals, and housing.
  • Boost to MSMEs: Local suppliers and support services like catering, security, logistics, and training see a boost in business.
  • Balanced Growth: This decentralization aligns with India’s goal of equitable regional development, easing pressure on metros and offering holistic national progress.

Opportunities for Startups and Innovation

GCCs are often gateways to more innovation in their host cities. They partner with local colleges, launch incubators, and work with startups to solve global challenges. For instance, agri-tech, vernacular tech, logistics, and ed-tech ventures are increasingly based in smaller towns, solving local problems with global potential.

This has opened up an entire ecosystem where GCCs not only act as employers but also as innovation enablers. They provide mentoring, funding, and even global market access to startups from emerging cities.

Challenges That Remain

Despite the positive momentum, several hurdles remain:

  • Infrastructure Gaps: Not all Tier-II and Tier-III cities are equally developed. Power cuts, inconsistent public transport, and patchy healthcare can be deterrents.
  • Lack of Senior Talent: While junior and mid-level talent is abundant, experienced professionals in strategic roles are harder to find locally.
  • Mindset Shift: Companies and employees need to break the “metro-only” mindset. It requires a cultural shift and a re-evaluation of career progression narratives.
  • Policy Execution: While policies are promising, execution at the local level can vary. Land approvals, internet reliability, and tax clarity are still concerns.

What Lies Ahead

As India continues to climb the value chain in global service delivery, GCCs are likely to play a central role in driving knowledge-based exports. With digital-first ecosystems, work-from-anywhere models, and distributed workforce preferences becoming the norm, the logic of concentrating operations only in metros is becoming outdated.

Smaller cities are no longer peripheral—they are central to India’s next phase of economic transformation. With continued focus from the government, infrastructure investment, and private sector confidence, Tier-II and Tier-III towns are set to become the beating heart of India’s innovation and employment engine.

Conclusion

India’s future lies not just in its glittering metros but in the quiet rise of its smaller cities. These towns, once overlooked, are fast becoming the new centres of gravity for global business operations. The story of GCCs moving to Tier-II and Tier-III cities is not merely one of cost-saving; it is a powerful narrative of inclusive development, democratized opportunity, and resilient economic planning.

The road ahead is promising, and if current trends continue, the term “small city” may soon become a misnomer in India’s corporate landscape.

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