Bengaluru’s Economic Growth and Emerging Tech Hubs

Bengaluru, often dubbed the Silicon Valley of India, has witnessed remarkable economic growth in recent years. According to the Bengaluru Rising report from the UnboxingBLR Foundation, the city ranks third in company formations, following Mumbai and Delhi. Over 27,000 new companies were registered between 2012 and 2023. Additionally, Bengaluru has added 80 million square feet of Grade A office space, generating around 800,000 jobs. This growth has established Bengaluru as India’s entrepreneurial hub, especially in the startup ecosystem, where it leads in startup funding and unicorn creation.

Government Initiatives for Tier II and III Cities

The Government of India is now focusing on developing mini Bengalurus in tier II and III towns. Union Commerce & Industries Minister Piyush Goyal has suggested creating new townships dedicated to entrepreneurs and startups. A new policy is in the works to provide incentives for setting up global capability centres (GCCs) in smaller cities. This initiative aims to decentralise the tech industry’s growth and reduce the pressure on Bengaluru.

Growth of Global Capability Centres (GCCs)

Bengaluru remains the primary hub for GCCs in India, accounting for 36% of the client base for the first half of FY25. However, its share of GCC units has fallen from 33.8% to 29.4% over the past five years. While the number of GCCs in Bengaluru increased by 41%, the total number of GCC units across India rose by 62.5%. This indicates a shift towards emerging cities like Ahmedabad, Pune, and Coimbatore, which are becoming players in the GCC landscape.

Emerging Cities as New Tech Hubs

Emerging cities are now attracting attention due to their skilled workforce and lower operational costs. The talent pool in these cities grew by 26% between 2020 and 2024. Companies find it easier to hire in these locations, making them attractive for expansion. The cost of living and real estate is lower, with employee salaries being 25-30% cheaper than in established tech hubs.

Challenges and Opportunities

Bengaluru faces challenges such as traffic congestion, water scarcity, and rising costs. These issues are prompting companies to explore opportunities in smaller cities. The shift allows firms to reduce attrition and cut costs amid a challenging economic landscape. The Indian IT sector, valued at $254 billion, is adapting by leveraging the advantages offered by tier II and III cities.

Future Prospects

The GCC market in India is projected to reach $100 billion by 2030, employing over 2.5 million people. With the government’s focus on developing smaller cities, the landscape of India’s tech industry is set for transformation. The growth of GCCs in emerging locations indicates a promising future for technological innovation and economic development across the country.

Questions for UPSC:

1. Critically analyse the impact of global capability centres on India’s economy.
2. Estimate the potential benefits of developing tier II and tier III cities as technology hubs.
3. Point out the challenges faced by Bengaluru in maintaining its position as India’s tech capital.
4. What are the key factors contributing to the growth of emerging cities in the tech sector? Discuss with suitable examples.

Answer Hints:

1. Critically analyse the impact of global capability centres on India’s economy.

1. Global Capability Centres (GCCs) contribute to employment, with close to 2 million people employed as of fiscal 2024.
2. The GCC market in India is projected to reach $100 billion by 2030, enhancing economic growth.
3. They encourage innovation and attract foreign investment, boosting local economies.
4. GCCs are decentralizing the tech industry, reducing pressure on major hubs like Bengaluru.
5. They enhance skill development and create a competitive workforce across various regions.

2. Estimate the potential benefits of developing tier II and tier III cities as technology hubs.

1. Lower operational costs – Salaries and real estate rentals are 25-30% and 50% cheaper, respectively.
2. Access to a skilled workforce – Emerging cities have seen a 26% growth in the GCC talent pool.
3. Reduced attrition rates due to local hiring, encouraging community stability.
4. Decentralization of tech growth alleviates the strain on major cities like Bengaluru.
5. Potential for sustainable economic development through the establishment of new tech ecosystems.

3. Point out the challenges faced by Bengaluru in maintaining its position as India’s tech capital.

1. Infrastructure bottlenecks, including traffic congestion and water scarcity, hinder growth.
2. Rising costs of living and doing business make it less attractive for companies.
3. Increased competition from emerging cities that offer better cost-to-value ratios.
4. Declining share of GCC units, indicating a shift in investment focus to other regions.
5. Challenges in talent retention due to high living costs and urban stressors.

4. What are the key factors contributing to the growth of emerging cities in the tech sector? Discuss with suitable examples.

1. Availability of skilled professionals – Cities like Ahmedabad and Pune are developing strong talent pools.
2. Lower operational costs attract companies – Real estate and salaries are cheaper than in Bengaluru.
3. Government incentives and policies support the establishment of GCCs in smaller towns.
4. Improved infrastructure and business environments facilitate the growth of tech companies.
5. Examples include Coimbatore and Mangaluru, which have seen increased GCC unit establishment and growth in local talent.