Karnataka positions itself as GCC hub, unveils innovative policy to boost GCC ecosystem

The intent behind proposing the policy was to serve as soft push for incentivising GCCs and also to showcase the government’s commitment towards supporting and facilitating GCC expansion in the state.

By Bharath Reddy Abhishek Jain 

Global Capability Centers or GCCs have taken a prominent role in the 21^st century. While they may have started as back offices, they have transformed from mere cost-arbitrage centers to potential alternative technological and strategic development headquarters. They have become hubs for fueling growth, and expansion of multi-national corporations (MNCs) and also providing diverse opportunities for people development. Today, many developing economies including India have started competing to establish themselves as a hub for GCCs and emerge as a ‘destination of choice’ given the transformative role that GCCs play by way of job creation, technology advancement, and skill enhancement, positioning India at the forefront of innovation and service delivery.

With an estimated 1,700 GCCs across the country employing 1.66 million employees which generated an annual revenue of $64.6 billion, India definitely qualifies as a ‘tried and tested’ GCC friendly ecosystem. With the backdrop of India’s ‘techade’, the market size of India’s GCC ecosystem is projected to surpass $ 100 billion, which could act as a propellor to help India achieve its ambition to hit a $1 trillion economy. Karnataka accounts for approximately 1/3 of the GCCs of India and also 1/3 of the GCC market size. It was ranked number 1 in the India Innovation Index 2021 by NITI Aayog. While it is no secret that a large part of the reason for Karnataka’s massively successful numbers is the capital city of Bengaluru which is India’s ‘Silicon Valley’ and ‘unicorn capital’ and the world’s 2nd largest hub for AI talent. In an attempt to build Karnataka as a ‘destination of choice’ the Government of Karnataka took the novel step of introducing the Karnataka Global Capability Center (GCC) Policy 2024-29 which is nationally and also globally a first of its kind policy curated to specifically incentivise GCC expansion.

While on the face of it the policy is like any other incentives policy that seeks to drive/grow something, the policy actually goes beyond merely offering incentives by trying to create value for the GCCs by using the policy as a means to reimagine Karnataka’s GCC ecosystem by 2029. The policy focuses on 4 strategic pillars to build this ecosystem – (i) Talent: which focusses on developing and upskilling the people who will work in GCCs today and tomorrow; (ii) Local Ecosystem: which focusses on building a network among GCCs and providing avenues/ platforms to enable GCCs to seamlessly collaborate with Karnataka’s vibrant local innovation ecosystem; (iii) Infrastructure and incentives: introducing the ‘Beyond Bengaluru’ concept and incentives covering reimbursement of rent, stipends, EPF contributions, etc and (iv) Regulatory Easing: scaling the ease of doing business for MNCs and GCCs. Another strong theme that is emerging from this policy is the ‘Thought Leadership’ which includes the proposal to build a GCC Acceleration and Investment Council to steer Karnataka’s GCC initiatives and provide strategic guidance.

While the intent behind proposing the policy was to serve as soft push for incentivising GCCs and also to showcase the government’s commitment towards supporting and facilitating GCC expansion in the state, the utility of these, especially the non-monetary incentives yet to be seen. On the monetary side, the policy proposes multiple incentives in terms of regulatory relaxations (which are spread across GCCs by size) including human resourcing (recruitment assistance from 10-50% up to a cap of Rs 7 crore, reimbursements for up to Rs 2,500 as internship stipends for a maximum of 100 interns), tax benefits (reimbursement of 30% of the property tax incurred by GCCs for a period of three years from the commencement of their operations), Capex reimbursements (40% of the capital expenditure up to Rs 4 crores for GCCs ‘within Bengaluru’ and 5 cores for GCCs ‘Beyond Bengaluru’) etc.

While there is no doubt that the policy is a positive step and has moved the needle towards incentivising and accelerating GCC expansion, it remains to be seen whether the needle has truly moved enough, and whether the incoming national GCC policy can provide any incremental relaxation or support to GCCs.

(Bharath Reddy is Partner and Abhishek Jain, Associate at Cyril Amarchand Mangaldas.)

Views are personal and do not represent the stand of this publication.