For years, Tier-1 cities like Mumbai, Bengaluru, and Delhi have been the default choice for companies setting up in India. But a quiet shift is underway, and it’s picking up speed. Increasingly, businesses are choosing Tier-2 and Tier-3 cities as their launch pads or expansion hubs.
The reasons aren’t just about saving money. They’re about finding growth in new places, tapping into talent that was previously overlooked, and building operations in cities that offer the right mix of infrastructure and quality of life.
The Numbers Tell the Story
Hiring surge — Recruitment in Tier-2 and Tier-3 cities grew by over 50% in the first half of 2025 compared to the same period last year. Cities like Indore and Jaipur recorded 30–40% year-on-year growth, outpacing Tier-1 markets.
Global Capability Centres (GCCs) — The share of GCCs in smaller cities rose from 5% in FY2019 to 7% in FY2024, and is projected to hit 15–20% by the end of 2025.
Cost efficiency — Businesses setting up in Tier-2 locations report 10–35% lower operational costs, driven by affordable real estate, competitive talent costs, and cheaper infrastructure.
Attrition advantage — Employee attrition rates in smaller cities are around 10% lower than in metros, saving both hiring and training expenses.
Retail potential — Consumer demand in Tier-2 and Tier-3 cities is expanding rapidly, with e-commerce platforms like Meesho reporting 20% annual growth from these markets alone.
Why This Shift Makes Business Sense
Access to talent without the churn
Engineering, finance, design, and IT graduates are no longer concentrated in metro areas. Many choose to stay in or return to their hometowns when good opportunities arise. For companies, this means lower attrition and a stable, committed workforce.
Lower costs without cutting quality
Cheaper office space, lower salaries for equivalent skills, and reduced living costs for employees all add up to healthier margins. These savings can be reinvested into product development, customer acquisition, or scaling operations.
Government support
State governments are actively courting investment through SEZs, tax breaks, and fast-track approvals. Andhra Pradesh, for instance, recently announced ₹19,000 crore in IT infrastructure investment in cities like Visakhapatnam.
Better quality of life
Less congestion, shorter commutes, cleaner air, and lower housing costs make smaller cities appealing for employees. Happier teams stay longer — and work better.
Untapped consumer markets
As digital adoption spreads, smaller cities are seeing a rise in disposable incomes and spending habits. From retail to financial services, demand is growing in places where competition is still light.
The Bigger Picture
This shift isn’t about abandoning Tier-1 cities. It’s about decentralising growth. Headquarters and client-facing offices may remain in metros, but back offices, manufacturing units, R&D hubs, and even core business operations are increasingly being set up elsewhere.
For the Indian economy, this means more balanced regional development, reduced urban pressure on major metros, and faster upgrades to infrastructure in smaller cities. For businesses, it means accessing new talent pools, reducing costs, and positioning themselves closer to emerging markets.
The move to Tier-2 and Tier-3 cities isn’t just a trend. It’s a strategic evolution, and the companies making it early are likely to see the biggest long-term gains.
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