A 25-30 per cent cost advantage in talent pool costs and a striking 50 per cent lower real estate rental is enabling tier-2 and tier-3 cities emerge as the hub for large number of tech companies in India, according to a new report by Nasscom and Deloitte.

Focusing on 26 cities of high potential, the report examines five overarching pillars: talent, infrastructure, risk and regulatory environment, start-up ecosystem, and social and living environment, which are vital for establishing a flourishing technological landscape. “Fuelled by rapid infrastructure growth, diverse skills, burgeoning start-ups, and governmental initiatives, these emerging hubs are gearing to achieve the tier-1 status,” the report said.

Emerging cities

At present, 11-15 per cent of India’s tech talent resides in tier-2 and tier-3 cities. As decentralisation of work gains momentum, many new opportunities open for people in emerging cities. With 60 per cent of India’s graduates in engineering, arts, and science, smaller towns are emerging as a wellspring of potential.

These emerging cities are witnessing a surge in digitally skilled workforce, with over 1,00,000 professionals contributing to their growth.

Cost advantage

In emerging cities, businesses enjoy a 25-30 per cent cost advantage in talent pool costs and a striking 50 per cent lower real estate rental compared with mature hubs. This economic advantage makes these cities an attractive choice for growth without having to loosen the purse string much. Corporations are swiftly embracing this trend.

Over 140 Global Capability Centres (GCCs) have found a home in these locations, highlighting the growing interest of global enterprises in these promising emerging hubs.

Growth in innovation

“Beyond the cost advantage, tier-2 cities have become breeding grounds for innovation, nurturing a mutually beneficial relationship between start-ups and established corporations. In the past decade, this dynamic ecosystem has revolutionised the sector, creating about 9,00,000 direct and 3,00,000 indirect jobs. About 39 per cent of the country’s start-ups (over 7,000) operate in emerging hubs spanning across industries from DeepTech to Business Process Management (BPM),” Nasscom said.

Sumeet Salwan, Partner, Deloitte India, said, India’s significance in the tech services sector remains robust and is positioned for sustained and differentiated prominence in the years ahead. While big cities were the focus in the past, the post-pandemic era witnesses a remarkable decentralisation of work across the nation. Today, about 60 per cent of India’s overall graduates come from smaller towns and 30 per cent of total graduates relocate to tier-1 cities seeking employment.

He added, “Within the technology sector, the growth in digital and innovation skills in these emerging hubs have also been noteworthy. Start-ups here grew 50 per cent from 2014-2018, with expectations of 2.2X growth by 2025. This reinforces the well-established notion of a symbiotic relationship between the tech sector and the innovation ecosystem. Supported by governments’ push, availability of talent, and the new operating model where work proliferates equitably, these emerging hubs offer the potential for exponential growth.”

Sukanya Roy, Head GCC and BPM, at Nasscom said, “As companies worldwide continue to actively revisit ways of working with an eye on optimising outcomes, costs, and talent, the opportunity and possibility to develop alternative tech hubs are now becoming extremely essential. India is expected to have a skilled talent surplus by 2030. These hubs offer companies a compelling blend of advantages: access to a fresh, skilled talent pool, cost-effective operations, and robust infrastructure.”