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India’s booming smaller cities

Paran Balakrishnan | | Updated on: Jan 04, 2022
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The infotech industry is heading a charge to tier-2 and tier-3 cities and this has been speeded up by the pandemic

India’s second-level cities are finally coming of age. Graduates who finished university and then bought one-way tickets to Bengaluru, Delhi or Mumbai are suddenly rethinking. Should they stay put in cities like Indore, Bhubaneswar, Nagpur and Mangalore? Or, even more improbably, should they remain anchored in smaller places like Belgavi or Hubli in Northern Karnataka or even Warangal and Nizamabad in Telangana? Could they look at building a career in Vijayawada or Vizag in next-door Andhra Pradesh?

Our two lost pandemic years stuck at home have, contradictory though it may sound, both accelerated and slowed the move to tier-2 and tier-3 cities. At one level, youngsters who found themselves on a train or plane back to small-city India and the new world of work from home (WFH) have begun wondering whether they should return to the Big City with its sky-high rents and hour-long commutes. According to one estimate, 10-20 per cent of youngsters who don’t have customer-facing jobs are reluctant to return to big-city life. Says Anuj Puri, Chairman, Anarock Property Consultants: “A large chunk of the migrant population working in cities have hometowns in cities like Lucknow, Jaipur, Chandigarh, Bhubaneshwar, Indore. When the pandemic struck, many moved back to their hometowns and worked from there.”

WFH has also made industry leaders re-evaluate their deepest beliefs on how companies should function. Says Pareekh Jain, CEO, Pareekh Consultants: “This remote operating model’s success, without a productivity dip, has proved employees no longer need to be in metro cities to execute projects.” But conversely, Covid-19 has also slowed the shift to smaller cities. Infotech companies that had already decided to make a move suddenly found their office-building plans put on hold due to pandemic curbs.

To be sure, the big-city exodus is being mainly led by the IT/ITeS sectors, but others are also training their eyes in the same direction. Also, don’t forget the IT/ITeS sectors occupy almost 40 per cent of the commercial real-estate sector and offer a huge chunk of jobs so any move they make is bound to have an enormous impact. Leading the way to smaller cities are engineering-services firms. Others contemplating a small-city move include the start-up sector which is being squeezed by high rents and steeply rising costs of hiring talented youngsters in the bigger cities.

Much lower disruption

Adds Jain: “The level of disruption in second-rung centres of IT firms has been much lower as compared to metro cities’ facilities. Secondly, staffers are returning to offices at a brisker pace in tier-2 and tier-3 centres than in metro units. Given these advantages, companies are likely to aggressively open new centres or expand existing facilities.”

Amit Ramani, CEO of co-working company Awfis, which has built offices in several smaller cities, identifies eight as the pick of the crop — Kochi, Coimbatore, Ahmedabad, Indore, Jaipur, Lucknow, Bhubaneswar and Chandigarh. He says: “My bet is very aggressively on Indore, Ahmedabad, Coimbatore and Kochi. I’m also extremely bullish on Bhubaneswar and Jaipur and we’re expanding our Chandigarh presence,” he says. About Ahmedabad-Gandhinagar, he says, “Its time in the sun has come.” Eight top IT companies including TCS, Wipro, Cap Gemini and Tech Mahindra are already there. The state government is also extending a host of incentives to companies that set up shop there.

Similarly, Jaipur, which has the Mahindra Tech Park and plenty of hotels and restaurants, is also growing fast. Adds Jain: “IT biggies such as TCS, Infosys, and Tech Mahindra have opened up centres in Jaipur with major projects being executed in the software-services space.” Other co-working companies, too, have spotted the opportunities. Smartworks is finalising co-working spaces in Jaipur and Coimbatore. Similarly, another co-working company, IndiQube, plans more seats in tier-2 cities. And IWG has struck a tie-up to build 18 centres across Delhi-NCR, Haryana, Uttar Pradesh, Jammu and Kashmir and Gujarat.

Don’t imagine firms are only moving to a handful of fast-moving tier-2 cities. Indian IT/ITeS and engineering services companies have already planted their flags in 27 tier-2 cities, according to a Pareekh Consultants’ study. These include unlikely map points like Kakinada, Vizag and Vijayawada in Andhra Pradesh (both Vizag and Kakinada benefit by being seaside towns). Cyient, which focusses on engineering, manufacturing, data analytics and networks, is already in Kakinada. Cyient, Wipro and Tech Mahindra have set up bases in Vizag.

In next-door Telangana, which is strongly wooing IT companies, Tech Mahindra opened an office in Warangal in early 2020 and said it’s looking at employing 1,000 people there. Cyient has also set up shop there and so has A-Theorem an animation company that opened last June and said it would hire around 1,300 people.

What’s helping trigger the enthusiasm for tier-2 and tier-3 cities? Firstly, anyone who remembers these cities from earlier decades as sleepy spots lacking job opportunities and devoid of all entertainment except ramshackle old movie-houses should reconsider. In those days, any graduate with even a trace of ambition would hotfoot it to big cities where they might land a job, meet other young people and move into a faster track. Today, all that’s changed dramatically.

The biggest driver has been technology like the Internet and mobile phones that bring the world to even the smallest locale. Eating out and entertainment options are virtually the same as what’s on offer in bigger cities. Starbucks recently said it had 216 outlets in 17 Indian cities. Similarly, McDonald’s Domino’s, Dunkin’ Donuts and KFC have all expanded across scores of smaller Indian cities. Several restaurant and food chains say the tier-2 and tier-3 cities recovered faster from the pandemic and so they have turned more attention to these cities.

Take a city like Indore. It has half a dozen malls so the entertainment options aren’t so different from Delhi, Mumbai, Bengaluru or Pune and Chennai. State governments also are aware of the need to provide uninterrupted power and telecom facilities. Several of these cities have engineering colleges where tech and engineering services companies can hire from. The other great worry for youngsters is, of course, what opportunities do they have to switch jobs? They don’t want to be stuck in one company because there aren’t any others in a tier-2 city. Ramani insists this is about to change dramatically as a flood of companies head to smaller-city India. “In the next six-to-12 months you will have a lot of companies moving to these cities,” he asserts about his favourite eight cities.

India’s corporate world has always revolved around a handful of cities. As the tier-2 and tier3 cities come into their own, they could create a much wider base and change the face of modern India.

Published on January 05, 2022

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