India’s Tier-2 Cities: What is the Appeal for Foreign Businesses?

• India’s Tier-2 cities are often well-connected to major metropolitan centers and have a higher quality of life.
• Indian cities are classified into tiers on the basis of population density and not levels of development.
• Increasingly, younger Indians are choosing to relocate to Tier-2 cities due to congestion and pollution in Tier-1 locations, thereby spreading out the talent market.
• India Briefing briefly spotlights Tier-2 cities in the country and the opportunities available to foreign investors in these areas.

India’s Tier-2 cities are steadily becoming the preferred destination for businesses, both in the manufacturing and services sectors. The drivers for this shift include the availability of larger and more open spaces in comparison to the metropolitan Tier-1 cities, besides lower costs of operation.

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Moreover, the COVID-19 pandemic has accelerated concerns regarding overpopulation in Tier-1 cities, rising levels of pollution, and thereby deteriorating standards of living despite the high costs.

Health and wellness will become major considerations for where younger Indians live and work – both, unmarried and with young families, as remote work and hybrid work models, flexible working hours, and rapid inter-city and inter-state mobility become the norm.

The availability of cost-effective infrastructure, affordable real estate, better transport connectivity, presence of education hubs, and opportunities in various industrial sectors are among key advantages that several Tier-2 cities in India can offer.

Advantages of Tier-2 cities in India

Labor pool

The pandemic accelerated changes to the working culture across various industries where remote work is possible. This in turn motivated many Indian professionals to positively consider shifting to smaller cities, often located in the hometown or close to the hometown. The trend to move out of Tier-1 cities has also been building up for awhile due to rising air pollution concerns and high costs of living.

Foreign companies looking to set up in India should therefore consider Tier-2 locations more seriously as prospective hires can be sourced relatively easily – both from within these cities and from Tier-1 cities.

Advanced infrastructure

India’s 2021 Union Budget announced a boost for infrastructural development in the country to develop office buildings that will match global standards and be equipped with all necessary facilities that will enable a comfortable work environment.

Since Tier-1 cities are densely populated and have higher living expenses, foreign investors can expect growth in economic activities in turn leading to more infrastructural development in lesser populated cities like Meerut (Uttar Pradesh), Karnal (Haryana), Amritsar (Punjab), Jaipur (Rajasthan), among others.

The 2021 Budget has also given impetus to improving the transport connectivity of Tier-2 cities, by building and upgrading metro/subway lines as found in Tier-1 cities, but at a lesser cost. A key motivation here is to provide more premium housing in these areas.

Education

Several industrial sectors located in Tier-2 cities across manufacturing, automotive, pharmaceuticals, and information technology (IT) are skills-based or have legacy experience, resulting in the organic growth of informal enterprises and increasingly, corporate enterprises.

Many of these cities have  traditionally grown their economic and industrial base supported by the presence of education and research hubs, or turnkey foreign investments, which lower costs of hiring and talent sourcing.

Where to locate your investment: A snapshot of prominent Tier-2 cities in India

Andhra Pradesh – ranks #1 in ease of doing business

Quick facts

Andhra Pradesh has established itself as the number one state in India to do business, is the country’s largest exporter of marine products, and benefits from its prominent connections with major world markets.

Prominent Tier-2 cities in the state are:

Kurnool

Kurnool is a major city and judicial capital in the state of Andhra Pradesh. It is known for its mineral resources – iron ore, dolomite, limestone, ochre, quartz, and silica besides its agro-based industries.

Industries

• Agriculture and allied services – horticulture, livestock, fisheries, and food processing
• Mineral-based industries
• Education services

Educational institutions

• Adoni Arts and Science College
• Kurnool Medical College
• G Pulla Reddy College of Engineering & Technology

Key economic zone

• Raaghmayuri Builders Pvt. Ltd.

Connectivity

• Local bus network
• Cabs
• Metro system

Nellore

The economy of Nellore is mainly dependent on the agriculture and its sectors; however, its industrial and services sectors have also contributed 23 percent and 42 percent respectively to India’s economy. In 2018, Nellore’s per capita income at current prices stood at US$2,151.

Industries

• Agriculture – horticulture, livestock and fisheries
• Construction
• Services – education, real estate, health, and transport

Educational institutions

• Lakshya Defense Academy
• Koneru Lakshmaih University Vijayawada

Key economic zones

• Mas Fabric Park (India) Pvt. Ltd.
• Bhartiya International SEZ Limited

Connectivity

• National Highway 16
• Vijayawada Railway Division of South Central Railway Zone

Visakhapatnam

The most populated and largest city in Andhra Pradesh, Visakhapatnam lies between the Eastern Ghats and the Bay of Bengal coast. It is the second largest city along India’s eastern coast after Chennai, and the fourth largest city in South India. With an estimated output of US$43.5 billion in 2016, the city was the ninth largest contributor to India’s overall gross domestic product that year. The city is also a prominent naval base. Besides, Visakhapatnam Port is one of 13 major ports in India and the state’s only major port. Located midway between the Chennai and Kolkata ports, the Visakhapatnam Port is India’s second-largest port by volume of cargo handled. Additionally, the port operates cruise shipping to the Andaman and Nicobar Islands.

Industries

• Agriculture – animal husbandry and fishing
• Minerals
• Steel industries

Special economic zone

• Andhra Pradesh SEZ in Visakhapatnam District

Educational institutions and research organizations

• Indian Institute of Management (IIM)
• Damodaram Sanjivayya Nationl Law University
• Indian Maritime University
• Kalam Institute of Health Technology
• Bhabha Atomic Research Centre’s second research facility
• Offices of the National Institute of Oceanography and the Indian Meteorological Department

Connectivity

• National highways and arterial roads
• Visakhapatnam Railway Station
• Visakhapatnam Port

Gujarat – established industrial and commercial base and now home to India’s first international financial services center

Quick facts

Gujarat International Financial Tec-City (GIFT City) is India’s first international financial services center (IFSC), that aims to be a world-class financial and IT zone in India and the world. Besides, the state ranked number one in the Export Preparedness Index 2020. Gujarat boasts of the highest number of operational ports and commercial cargo ports and is the second largest producer of onshore crude oil as well as natural gas. Gujarat also accounts for 72 percent of the world’s processed diamonds and is the world’s third largest producer of denim. There are currently 20 operational special economic zones, eight notified Special Investment Regions, and 202 industrial estates in Gujarat. 38 percent of the Delhi Mumbai Industrial Corridor lies in the state, facilitating industrial growth here.

Prominent Tier-2 cities in Gujarat are:

Rajkot

Rajkot’s engineering and services sector is a major contributor to its industrial growth. Industries that have established clusters to expand capacity include submersible pumps, textile printing, software, and casting. The Gujarat government provides financial and technical support for small-scale units in the manufacturing sector. The Rajkot district has one of the largest markets for gold jewelry due to the purity of gold available here.

Rajkot has around 43,711 registered industrial units. Out of these, there are approximately 86 medium- to large-scale industries scattered over 16 industrial areas of the district.

Industries

• Agro-based industries
• Mineral-based industries
• Textiles
• Wooden based
• Chemical-based
• Auto parts and equipment
• Readymade garments
• Machine tools
• Metallurgical industries
• Engineering

Key economic zones

• Rajkot Engineering Cluster – this cluster manufactures diesel engines and pumps in Bhaktinagar Industrial Area, has 375 units with turnover of INR 2 billion (US$27 million) and workforce of 7,500 employees. They export their products to Countries in the Middle East, Africa, and Saudi Arabia.
• Rajkot Machine Tool Cluster – this cluster is run by Rajkot Machine Tool Manufacturers’ Association, manufacturers machine tool spares and is engaged in metal forming and cutting, has 325 units with turnover of INR 8 billion (US$109 million) and workforce of 10,000 employees. They export their products across Europe and Asia.
• Rajkot Bearing Cluster – this cluster is run by the Rajkot Engineering Association, manufactures ball bearings, needle roller bearings, cylindrical roller bearings and taper roller bearings, has 60 units with turnover of INR 4 billion (US$54 million) and workforce of 6,600 employees. They export their products to US, Australia, Germany, Italy, Nepal, Sri Lanka, and the Middle East.
• Rajkot Foundry Cluster – this cluster is run by the Rajkot Engineering Association, manufactures grey iron castings, machine tools, textiles, pumps, automotive and valves, has 505 units with turnover of INR 27 billion (US$367 million) and workforce of 20,000 employees. Foundry is the leading industry of this region.
• Rajkot Auto Parts Cluster – this cluster manufactures pistons, cam shafts, sleeves, liners, spares, connecting roads and 300 categories of spare parts for automobile industries, has 303 units with turnover of INR 7.5 billion (US$102 million) and workforce of 9,500 employees. They export their products to countries in the Middle East, Europe and the Gulf.
• Rajkot Gems and Jewelry Cluster – this cluster is run by the Rajkot Gems and Jewelry Association, manufactures gold and silver jewelry, has 5,000 registered and unregistered units with turnover of INR 10 billion (US$136 million) and workforce of 35,000 employees. They export their products to US, UK and UAE.
• Rajkot Plastic Manufacturing Cluster – this cluster is run by the Rajkot Plastic Manufacturer Association, manufactures PVC pipes, PVC bags, boxes, molding items, poly containers and injection-molded items, has 800 units with workforce of 6,000 employees. They export their products to Dubai, South Africa, and the Gulf.

Educational institutions

• Atmiya Institute of Technology & Science
• B.K. Modi Govt. Pharmacy College
• Institute of Law and Forensic Science
• K.A. Pandi English Medium Law College
• Kamdar School of Nursing

Connectivity

• Rajkot Bus Rapid Transit System (BRTS)
• Ring roads network
• Rajkot Junction Railway Station and Bhaktinagar Railway Station
• Rajkot Airport

Surat

Located at the start of the Tapti River, Surat used to be a large seaport and is now the commercial and economic center in South Gujarat, an area famous for its diamonds and textile industries and as a shopping hub for apparel and accessories. Surat is the eighth largest city by population and ninth largest urban agglomeration in India.

Surat’s textile sector has made the most contribution to its industrial economy. The production and trade of synthetic textiles is Surat’s main business. Out of Surat’s 41,300 medium and small-scale industries, 24,000 units are devoted to textiles. Surat also has various engineering plants belonging to Essar, Larsen and Toubro, and RIL. Surat is also an emerging IT hub, with leading multinational companies like IBM and HCL having set up satellite or virtual offices here.

Industries

• Textiles
• Diamond cutting and polishing
• Manufacturing of machines and equipment, zari (even thread traditionally made of fine gold or silver)

Special economic zones

• Surat SEZ
• Surat Apparel Park SEZ

Educational institutions

• BJ Patel College of Education
• Government B.Ed College
• Bhagwan Mahavir College of Education

Connectivity

• Surat Bus Rapid Transit System (BRTS)
• Surat International Airport
• Surat Railway Station

Vadodara

Vadodara (also known as Baroda) is Gujarat’s third largest. Over 35 percent of India’s power transmission and distribution equipment manufacturers are based in Vadodara and an estimated 800 ancillary units support the power sector equipment manufacturing and engineering industries.

Industries

• Agriculture – fisheries and dairy
• Textiles
• Pharmaceuticals
• Chemicals – fertilizers
• Glass
• Biotechnology
• Power transmission and distribution equipment

Special economic zones

• Kandla Special Economic Zone

Educational institutions

• Sarkari Mahila Adhyapan Mandir College
• District Institute of Education and Training
• The Maharaja Sayajirao University of Baroda

Connectivity

• Vadodara Bus Rapid Transit System (BRTS)
• Vadodara Airport
• Vadodara Railway Station
• Under-Construction: Mumbai–Ahmedabad high-speed rail corridor

Haryana – largest producer of passenger vehicles and motorcycles

Quick facts

Haryana ranks #3 in the ease of doing business in India. The state government has a single roof clearances system set up through the Haryana Enterprise Promotion Board. Haryana’s focus sectors include auto and auto components, agro and food processing, textile and apparels, footwear and accessories, electronics, IT/ITeS, defense and aerospace, renewables, pharmaceuticals, and chemicals. Major investment opportunities are available at the KMP Global Corridor, Global City at Gurugram, Integrated Multi Modal Logistics Hub, MRTS between Gurugram Manesar Bawal, Industrial Model Townships, and the Integrated Aviation Hub.

Overall, the state is a mature base for automobile manufacturing, IT, and biotechnology. Haryana state comes under the influence zone of two industrial corridors – Delhi Mumbai Industrial Corridor (DMIC) and Amritsar Kolkata Industrial Corridor (AKIC). Thirteen districts from the state are part of Delhi’s National Capital Region (NCR), a major trade and consumption center.

Prominent Tier-2 cities in the state are:

Chandigarh

Chandigarh is a union territory and is directly controlled by the federal government. It is renowned for being one of India’s earliest planned cities, the master plan for which was prepared by Swiss-French architect Le Corbusier. Its quality of social infrastructure and many green spaces make it an ideal destination to do business. The city has one of the highest per capita incomes in the country and is among the cleanest in India. The neighboring cities of Panchkula and Mohali along with Chandigarh make up the prominent Tricity area.

Chandigarh is home to over 56,000 micro, medium, and small-scale units, 40 percent of which are involved in manufacturing components for tractors. Its well-connected airport was responsible for handling over 4,500 tons of freight in 2015-16. Chandigarh has an emerging IT industry – its infrastructure, proximity to Delhi, Haryana, Punjab, and Himachal Pradesh, and the resultant IT talent pool has attracted leading MNCs. Major IT multinational companies that have set up here include Quark, Infosys, EVRY, Dell, IBM, TechMahindra, Airtel, Amadeus IT Group, and DLF.

Industries

• Manufacture of tractor components
• IT/ITeS
• Electronics
• Pharmaceuticals
• Machine tools

Key economic zone

• Chandigarh IT Park (also known as Rajiv Gandhi Chandigarh Technology Park)

Educational institutions

• Panjab University
• Punjab Engineering College
• Postgraduate Institute of Medical Education and Research

Connectivity

• National highways
• Chandigarh Transport Undertaking (CTU) – buses
• Chandigarh International Airport
• Chandigarh Junction Railway Station

Faridabad

Faridabad is the largest city in Haryana and part of the Delhi NCR. The city’s infrastructure is steadily growing according to a planned layout that divides residential and industrial sectors, besides commercial and educational establishments. Enterprises in the Faridabad-Ballabgarh-Palwal industrial complex produce white goods, such as ACs, as well as tractors, motorcycles, tires. Introduction of dyeing and printing of textiles in the complex has led to a rise in the number of garment exporters relocating base to Faridabad. Due to their good quality, exports of machinery, electrical equipment, and garments have grown.

Faridabad is home to large-scale and multinational manufacturing and constructuction companies like Escorts Limited, India Yamaha Motor Pvt. Ltd., Havells India Limited, JCB India Limited, Indian Oil (R&D), Larsen & Toubro (L&T), Whirlpool India Ltd., ABB Group, Goodyear India Ltd., Bata India Ltd, Eicher Tractor Ltd., Beebay Kidswear, and Lakhani Armaan Group. Start-ups and e-commerce platforms like healthcare start-up Lybrate and eyewear e-retailer Lenskart have their headquarters in Faridabad. More than 5,000 units of auto parts producers are based in Faridabad.

Industries

• Infrastructure
• Manufacturing

Key economic zones

The city is an industrial hub, with industrial plots available for development. There are plans for future SEZs.

• Industrial areas/estates developed by the Government of Haryana under the Faridabad Industrial Complex are located in: Sector-4, Sector-6, Sector-24 and 25, Sector-27, Sector-31, Sector-59, Hathin Industrial Area, and an Industrial Model Township,

Educational institutions

• Manav Rachna University
• National Power Training Institute (NPTI)
• Rai Foundation Engineering College

Connectivity

• Delhi Faridabad Skyway / Badarpur Flyover
• Local bus network
• Cab aggregators
• Metro system
• 35km from Indira Gandhi International Airport, Delhi

Gurugram

Gurugram (also known as Gurgaon) is India’s second largest IT hub and third largest financial and banking hub. The city is also a base for medical tourism in India. As a preferred destination for the IT sector, Gurugram is also home to thousands of start-up enterprises. Several leading multinational firms (including more than 250 out of the Fortune 500 companies), such as Google, Deloitte, Nestle, McKinsey, Coca-Cola, Pepsi, BMW, Agilent Technologies, and Hyundai etc. have their local offices or HQ located here.

Gurgaon’s business environment is now mostly centered around the high-tech industry. Prior to the IT boom, the city had established a manufacturing plant for Maruti Suzuki India Limited, India’s top performing automaker, before emerging as a business process outsourcing hub (after investments in that area by General Electric) and subsequently expanding both manufacturing and IT service capabilities.

Industries

• Manufacturing – capital goods, two-wheelers, food and beverage, electronics, and transportation equipment
• IT

Special economic zones

• DLF Cyber City Developers Ltd.
• Unitech Realty Projects Ltd.

Educational institutions

• Ansal Institute of technology
• GD Goenka University
• BML Munjal University
• Management Development Institute (MDI)
• Pearl School of Business

Connectivity

• National highways
• Cab aggregators
• Bus
• Metro system
• Gurgaon Railway Station
• Proximity to Indira Gandhi International Airport

Madhya Pradesh – largest producer of copper

Quick facts

Madhya Pradesh is a strong base of mineral resources, being the leading state in the production of coal, dolomite, copper, limestone, glass sand, and manganese. It also accounts for 14 percent of India’s total cement production.

Prominent Tier-2 cities in the state are:

Bhopal

Bhopal, the capital city of Madhya Pradesh, is known to be India’s greenest city and focused on the production of jewelry, handicrafts, and medicinal goods. Tourism is its main attraction.

Industries

• Pharmaceuticals
• Manufacturing – auto mobile components, pesticides, industrial gases, batteries, pipes etc.
• Tourism

Key economic zones

• Investment corridors being developed – Bhopal-Indore, Bhopal-Bina
• Agri Export Zone: Bhopal Division, comprising of Sehore, Vidisha, Raisen, Hoshangabad, Harda, Narsinghpur and Bhopal (wheat/duram exports)

Educational institutions

• Atal Bihari Vajpayee Hindi Vishwavidyalaya
• Jagran Lakecity University
• SAM Global University
• Rabindranath Tagore University
• Madhya Pradesh Bhoj Open University
• Makhanlal Chaturvedi National University of Journalism and Communication

Connectivity

• Raja Bhoj International Airport
• Bhopal Bus Rapid Transit System (BRTS)
• Railways – Bhopal Junction, Bhopal Habibganj

Indore

Indore is a commercial hub in central India, whose economy is a mix of traditional agro-industries and modern corporate and IT companies. The growing corporate presence of small and big IT companies is leading Indore to become an important Tier-2 city of India. However, its traditional textile industry remains integral to its economy, with a number of firms involved in the production of wholesale garments.

Industries

• Agro-based industries
• IT
• Textiles – wholesale garments
• Metal-based industries – alloy and steel
• Automobiles

Key economic zones

• Indore SEZ
• Indore Agri Export Zone comprising of Indore, Dhar, Shajapur and Dewas (wheat / duram export)

Educational institutions

• IIT Indore
• IIM Indore
• Symbiosis University of Applied Sciences
• Devi Ahilya University
• Oriental University
• Dr. A.P.J. Abdul Kalam University

Connectivity

• Indore Bus Rapid Transit System (BRTS)
• Indore Junction
• Devi Ahilyabai Holkar International Airport (about 8km from the city)
• National Highways
• Indore metro under construction

Ujjain

The Indian government is in the process of implementing the Agri Export Zone (AEZ) to make Ujjain a hub for agro food processing. To attract investors, the government is allocating lands and offering tax rebates. Ujjain has a well-developed road and rail network, cost-effective manpower, learning facilities, and medical services.

Industries

• Agriculture
• Services
• Small-scale industries – cotton, incense sticks, chemicals, tiles, and food processing

Key economic zones

• Dewas Road Industrial Area
• Maxi Road Industrial Area
• Tajpur Industrial Area
• Ujjain Agri Export Zone comprising of Neemach, Ratlam, Mandsaur, and Ujjain (wheat / duram export)

Educational Institutions

• Avantika University
• Ujjain Engineering College
• Prashant Institute of Technology and Science (PITS)
• Mahakal Institute of Technology
• Alpine Institute of Technology

Connectivity

• Local bus network
• Six railway stations, including Ujjain Junction
• Road networks linked to state and national highways

Uttar Pradesh – largest producer of food grains

Quick facts

Uttar Pradesh’s economy is largely driven by its agricultural sector, which in turn is supported by its fertile lands. It is the largest producer of horticulture crops, such as gooseberries, guavas, mangoes, potatoes, and peas. The state has the longest road, rail, and river network in India. Key industries in the state include food processing, IT, tourism, mineral-based industries, auto components, textiles, handlooms and handicrafts, biotechnology, and leather-based and sports goods industries.

Prominent Tier-2 cities in the state are:

Greater Noida

The Greater Noida Industrial Development Authority (GNIDA), which is responsible for the overall development of the city, has taken the steps to provide it with a quality urban environment and developed metro system that now attracts economic activities towards it. The establishment of quality infrastructure and the EcoTech industrial area, that ensures an effective single window system to provide clearances to projects, has now made Greater Noida a favored location for MNC investments.

Industries

• Automotive parts
• Electronics

Special economic zones

• Moser Baer SEZ
• NIIT Technologies Limited SEZ
• Wipro Limited

Educational institutions

• Tata Institute of Social Sciences
• Skyline Institute of Engineering & Technology
• Indraprastha Law College

Connectivity

• Cab aggregators
• Metro system

Kanpur

Kanpur is known as the economic capital of Uttar Pradesh, with industrial areas located in the Dada Nagar, Rooma, and Chakeri towns. The industries located in the Panki industrial area are Kanpur’s major industries, which deal in tool and fertilizer manufacturing, respectively. As of 2018, the city is home to 17,444 registered industrial units that work under the established manufacturing and services sector. Under the manufacturing sector, Kanpur is most known for its production of leather and leather-related products, while the services sector takes the lead in producing motor vehicles.

Industries

• Manufacturing – agro-based industries, jute-based industries, paper and leather industries, cotton, and metal
• Services – motor vehicles, cold storage industry, tailoring, and repair and maintenance of household appliances

Special economic zone

• Uttar Pradesh State Industrial Development Corporation

Educational institutions

• Indian Institute of technology (IIT Kanpur)
• Kanpur Institute of Technology (KIT)
• SRMS College of Engineering and Technology
• Chandra Shekhar Azad University of Agriculture and Technology

Connectivity

• Kanpur Metropolitan Bus Service
• Ganesh Shankar Vidyarthi Airport (Domestic)
• Railway – Kanpur Central

Lucknow

The emergence of the IT industry in Lucknow is marked by the setup of major Indian IT companies, such as HCL Technologies and Tata Consultancy Services, which have contributed to immense job creation in the city. The setup of an IT City is underway and has already been awarded the status of a special economic zone. Lucknow’s major industries include aeronautics, machine tools, and distillery chemicals, but it also has scope to export goods, such as textiles, electronics, leather, and handicrafts.

Industries

• Aeronautics
• Machine tools
• Distillery chemicals
• Furniture
• Chikan embroidery

Special economic zone

• Lucknow IT City

Educational Institutions

• IIM Lucknow
• University of Lucknow
• Amity University
• Babu Banarasi Das University
• Dr. A.P.J. Abdul Kalam Technical University (APJAKTU)
• Dr. Ram Manohar Lohia National Law University

Connectivity

• Lucknow Metro
• Chaudhary Charan Singh International Airport
• Four Indian National Highways
• Local buses and cab aggregators
• Several railway stations, including Lucknow Railway Station

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