India’s Tier-2 Cities: What is the Appeal for Foreign Businesses?

4/6/2021 10:48:00 AM

India’s Tier-2 cities are often well-connected to major metropolitan centers and have a higher quality of life. Indian cities are classified into tiers on the basis of population density and not levels of development. Increasingly, younger Indians are choosing to relocate to Tier-2 cities due to congestion and pollution in Tier-1 locations, thereby spreading out the talent market. India Briefing briefly spotlights Tier-2 cities in the country and the opportunities available to foreign investors in these areas. India’s Tier-2 cities are steadily becoming the preferred destination for businesses, both in the manufacturing and services sectors. The drivers for this shift include the availability of larger and more open spaces in comparison to the metropolitan Tier-1 cities, besides lower costs of operation. Moreover, the COVID-19 pandemic has accelerated concerns regarding overpopulation in Tier-1 cities, rising levels of pollution, and thereby deteriorating standards of living despite the high costs. Health and wellness will become major considerations for where younger Indians live and work – both, unmarried and with young families, as remote work, flexible working hours, and rapid inter-city and inter-state mobility become the norm. The availability of cost-effective infrastructure, affordable real estate, better transport connectivity, presence of education hubs, and opportunities in various industrial sectors are among key advantages that several Tier-2 cities in India can offer. Advantages of Tier-2 cities in India Labor pool The pandemic accelerated changes to the working culture across various industries where remote work is possible. This in turn motivated many Indian professionals to positively consider shifting to smaller cities, often located in the hometown or close to the hometown. The trend to move out of Tier-1 cities has also been building up for awhile due to rising air pollution concerns and high costs of living. Foreign companies looking to set up in India should therefore consider Tier-2 locations more seriously as prospective hires can be sourced relatively easily – both from within these cities and from Tier-1 cities. Advanced infrastructure India’s 2021 Union Budget announced a boost for infrastructural development in the country to develop office buildings that will match global standards and be equipped with all necessary facilities that will enable a comfortable work environment. Since Tier-1 cities are densely populated and have higher living expenses, foreign investors can expect growth in economic activities in turn leading to more infrastructural development in lesser populated cities like Meerut (Uttar Pradesh), Karnal (Haryana), Amritsar (Punjab), Jaipur (Rajasthan), among others. The 2021 Budget has also given impetus to improving the transport connectivity of Tier-2 cities, by building and upgrading metro/subway lines as found in Tier-1 cities, but at a lesser cost. A key motivation here is to provide more premium housing in these areas. Education Several industrial sectors located in Tier-2 cities across manufacturing, automotive, pharmaceuticals, and information technology (IT) are skills-based or have legacy experience, resulting in the organic growth of informal enterprises and increasingly, corporate enterprises. Many of these cities have traditionally grown their economic and industrial base supported by the presence of education and research hubs, or turnkey foreign investments, which lower costs of hiring and talent sourcing. Prominent Tier-2 cities in India Haryana – largest producer of passenger vehicles and motorcycles Quick facts Haryana ranks #3 in the ease of doing business in India. The state government has a single roof clearances system set up through the Haryana Enterprise Promotion Board. Haryana’s focus sectors include auto and auto components, agro and food processing, textile and apparels, footwear and accessories, electronics, IT/ITeS, defense and aerospace, renewables, pharmaceuticals, and chemicals. Major investment opportunities are available at the KMP Global Corridor, Global City at Gurugram, Integrated Multi Modal Logistics Hub, MRTS between Gurugram Manesar Bawal, Industrial Model Townships, and the Integrated Aviation Hub. Overall, the state is a mature base for automobile manufacturing, IT, and biotechnology. Haryana state comes under the influence zone of two industrial corridors – Delhi Mumbai Industrial Corridor (DMIC) and Amritsar Kolkata Industrial Corridor (AKIC). Thirteen districts from the state are part of Delhi’s National Capital Region (NCR), a major trade and consumption center. Prominent Tier-2 cities in the state are: Chandigarh Chandigarh is a union territory and is directly controlled by the federal government. It is renowned for being one of India’s earliest planned cities, the master plan for which was prepared by Swiss-French architect Le Corbusier. Its quality of social infrastructure and many green spaces make it an ideal destination to do business. The city has one of the highest per capita incomes in the country and is among the cleanest in India. The neighboring cities of Panchkula and Mohali along with Chandigarh make up the prominent Tricity area. Chandigarh is home to over 56,000 micro, medium, and small-scale units, 40 percent of which are involved in manufacturing components for tractors. Its well-connected airport was responsible for handling over 4,500 tons of freight in 2015-16. Chandigarh has an emerging IT industry – its infrastructure, proximity to Delhi, Haryana, Punjab, and Himachal Pradesh, and the resultant IT talent pool has attracted leading MNCs. Major IT multinational companies that have set up here include Quark, Infosys, EVRY, Dell, IBM, TechMahindra, Airtel, Amadeus IT Group, and DLF. Industries Manufacture of tractor components IT/ITeS Electronics Pharmaceuticals Machine tools Key economic zone Chandigarh IT Park (also known as Rajiv Gandhi Chandigarh Technology Park) Educational institutions Panjab University Punjab Engineering College Postgraduate Institute of Medical Education and Research Connectivity National highways Chandigarh Transport Undertaking (CTU) – buses Chandigarh International Airport Chandigarh Junction Railway Station Greater Noida The Greater Noida Industrial Development Authority (GNIDA), which is responsible for the overall development of the city, has taken the steps to provide it with a quality urban environment and developed metro system that now attracts economic activities towards it. The establishment of quality infrastructure and the EcoTech industrial area, that ensures an effective single window system to provide clearances to projects, has now made Greater Noida a favored location for MNC investments. Industries Automotive parts Electronics Special economic zones Moser Baer SEZ NIIT Technologies Limited SEZ Wipro Limited Educational institutions Tata Institute of Social Sciences Skyline Institute of Engineering & Technology Indraprastha Law College Connectivity Cab aggregators Metro system Source: India Briefing

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