India has firmly established itself as a global leader in the global capability centre (GCC) space, with over 1,580 GCCs employing over 1.66 million people. These centres, primarily involved in technology, research, customer support, and innovation-driven services, have become a cornerstone of India’s services sector.

According to the latest Economic Survey, GCCs will contribute 3.5% of India’s GDP by 2030. However, experts believe this number could rise significantly, potentially surpassing 5%, especially with the emergence of AI-driven technologies such as DeepSeek, which are expected to accelerate the country’s GCC expansion.

Impact of DeepSeek on the GCC Landscape

While India’s GCC sector has grown rapidly, new technologies like DeepSeek could reshape the global outsourcing environment. Alouk Kumar, founder and CEO of Inductus, highlighted that the rise of DeepSeek is a critical factor that may drive even more growth in the GCC space. “DeepSeek’s rise will accelerate the expansion of GCCs in India,” Kumar states. As AI technologies become more advanced and cost-effective, global companies are now keen on reducing their operational costs. Kumar notes that companies, including global giants, have realized the need to trim their expenses, with countries like China reportedly spending just $5 million to develop DeepSeek.

This is a challenge and unique opportunity for India to capitalize on its technological strengths, talent availability, and cost-efficiency. However, India must adapt to the changing technological landscape to stay ahead of the competition. This means private companies and government entities must prioritize agility in their strategies and policies.

Shifting Focus from Metro Cities to Tier-2 Locations

Traditionally, India’s GCCs have been concentrated in its leading metropolitan cities—Bengaluru, Hyderabad, Delhi, Chennai, Mumbai, and Pune. They are chosen for their strong infrastructure, abundant skilled workforce, and business-friendly environment. However, with the rapid rise in operational costs, infrastructure strain, and changing work dynamics, the growth in these cities is beginning to slow down.

The rise of remote work and the growing pressure on metro cities have forced many companies to explore alternative locations within India. “We hope the government can streamline the process of running a GCC from a tax and infrastructure standpoint and invest in more infrastructure,” says Raghavendra Vaidya, MD and CEO of Daimler Truck Innovation Center India (DTICI). With the need to decentralize operations and create more competitive hubs, many businesses are now eyeing Tier-2 cities like Hubballi, Jaipur, and Trivandrum as potential hotspots for GCC expansion.

These Tier-2 cities have become increasingly attractive due to their availability of qualified talent and lower operational costs. Moreover, many of these cities are home to excellent educational institutions providing a continuous supply of skilled professionals. Kumar points out that talent availability is now the most critical factor for the success of GCCs, more so than infrastructure. “The success of GCCs in India to the tune of 70% depends upon the right kind of resources,” he says, emphasizing the need for policies that foster talent development in Tier-2 cities.

The Role of Budget 2025 in Decentralizing GCC Operations

As India’s GCC landscape faces mounting pressure, the upcoming Budget 2025 is seen as an essential step in shaping the future of this sector. Industry leaders hope the government will introduce policies that incentivize the establishment of GCCs in Tier-2 cities. Kumar suggests that offering tax breaks, infrastructure support, and other incentives would help in the decentralization process. 

“The government should introduce incentives for setting up GCCs in these cities to reduce the strain on metros while promoting regional development,” he advises.

The government’s role in promoting this shift will be crucial. A potential solution could be the introduction of tax holidays for companies that set up operations in less-developed regions, as seen in countries like Vietnam and Singapore. Linking these tax incentives to job creation and business growth could encourage companies to expand into smaller cities.

Additionally, experts believe the government should focus on creating a more conducive environment for innovation. “The next war on the horizon is going to be fought on cost, innovation, and R&D,” warns Kumar. Given the increasing global competition for GCCs, India must remain competitive by investing heavily in research and development. India’s R&D expenditure currently stands at just 0.7% of its GDP, which experts suggest is inadequate. Kumar suggests increasing this spending to at least 1.5% to keep India at the forefront of innovation and ensure long-term growth in the GCC sector.

Focus on Innovation, R&D, and Tax Incentives

As the global competition for GCCs intensifies, India must make bold moves to stay ahead of the curve. In particular, boosting R&D spending is critical to sustaining and expanding India’s position in the global outsourcing market. Kumar emphasises that India needs to invest more in R&D to exploit emerging global opportunities. “If India can increase its R&D expenditure to 1.5% of GDP, it would help to maintain its competitive edge in the technology-driven outsourcing space,” he explains.

Countries like Vietnam and Singapore have already implemented policies that encourage the establishment of GCCs by offering tax holidays for several years. India could do the same by providing tax benefits or lower tax rates to global companies that set up GCCs, helping businesses grow and strengthening the local economy.

Deloitte’s Budget Expectations 2025 report also suggests that the government could explore new tax incentives for GCCs. This could include providing tax holidays or offering concessional tax rates, similar to the concessions provided to manufacturing companies under Section 115BAB for entities set up after April 1, 2019. Tax breaks like these would allow global companies to stay profitable while investing more in innovation, benefiting both businesses and India’s economy.

The Need for a Unified National GCC Policy

The lack of a unified national policy confuses companies looking to establish operations in India, just like individual states like Madhya Pradesh, Telangana, and Tamil Nadu have introduced their own GCC policies. The absence of a clear and consistent framework has led to varying standards and practices across states, complicating investment decision-making.

Kumar suggested that the Indian government establish a unified, national-level policy to streamline the process of setting up GCCs in the country. “Newe some kind of single-window system or advisory support where companies can go for guidance,” he proposes. This system would make it easier for businesses to operate by streamlining regulations and reducing complexities. A more structured approach would allow the government to create a targeted approach to GCC expansion to create sector-specific hubs in cities that align with particular industries.

Looking Ahead: India’s Competitive Edge

India’s ability to remain at the forefront of the GCC industry will depend mainly on its adaptability and the policy measures it takes in the coming years as the global economy continues to evolve.

India has the potential to solidify its position as the global leader in the GCC sector with the right investment in infrastructure, innovation, R&D, and talent development. The upcoming Budget 2025 could play a crucial role in shaping this future, ensuring India’s competitiveness on the world stage.