Tier 2 Cities Emerge as New Business Hubs
India’s Tier 2 cities are increasingly becoming centers of business activity, with a JLL report noting they are now "joining the race" in leasing office space for Global Capability Centres (GCCs). This trend, which sees growth outside of traditional hubs like Bengaluru, signals a broader expansion of talent, infrastructure, and business services in these emerging regions.
- Operational costs in Tier 2 cities can be 30-50% lower than in metro areas, with office space rentals in cities like Surat costing ₹30–50 per square foot compared to ₹100–150 in Mumbai. This cost efficiency provides startups with a longer runway and greater flexibility. - Government initiatives like the Startup India Seed Fund Scheme, which provided ₹94.6 crore to incubators in 2025, and the Urban Infrastructure Development Fund (UIDF) with an annual budget of ₹10,000 crore, are actively promoting growth in these cities. State-specific programs, such as Karnataka's "Beyond Bengaluru" initiative, also offer tax breaks and subsidies. - Tier 2 and 3 cities are home to 60% of India's technology graduates, creating a significant talent pool. This, combined with lower attrition rates than Tier 1 cities, makes them attractive for companies setting up Global Capability Centres (GCCs). - Cities like Coimbatore, Kochi, and Ahmedabad are emerging as key GCC hotspots, hosting over 25, 20, and 15 GCCs respectively for major companies like Bosch, IBM, and TCS. The GCC market size is projected to grow from USD 64 billion in 2024 to over USD 105 billion by 2030. - Consumer spending is rising faster in non-metro areas, with Tier 2 and 3 cities outpacing metros in digital payment growth and spending on high-value categories like electronics, appliances, and even luxury goods. E-commerce orders from these cities now constitute 63% of the total. - Despite growth, logistical challenges remain a significant hurdle in Tier 2 and 3 cities, with costs accounting for 13-14% of GDP, well above the global average of 8-9%. Issues include fragmented supply chains, over-reliance on road freight, and inadequate cold chain infrastructure. - Specific cities are developing reputations for particular sectors: Coimbatore for EV components and manufacturing, Indore for logistics and pharma, Jaipur for IT and e-commerce, and Bhubaneswar as a hub for IT and biotech. - Successful startups are increasingly originating from these smaller cities, such as the SaaS giant Zoho in Tenkasi and the D2C skincare brand Minimalist, which was acquired by Hindustan Unilever, in Jaipur.
