Karnataka, Tamil Nadu woo GCCs with incentives in state budgets

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In the last week, Tamil Nadu and Karnataka unveiled incentives in their respective state budgets to woo Global Capability Centres or GCCs, a sign of their growing importance in job creation.

GCCs, which are dedicated offshore centres set up by a company in a foreign country to in-source IT and other related business functions, have been expanding at a frenetic pace in India in the last few years, as more global corporations look to build their own software service and product fixations.

Karnataka and Tamil Nadu, which produce lakhs of engineering graduates every year, are looking to attract more GCCs to invest, at a time when Indian IT firms have slowed down hiring in a weak macro environment.

For instance, Tamil Nadu’s new payroll subsidy for high paying jobs comes just after neighbour Karnataka announced that a GCC policy is on the anvil.

On February 19, Tamil Nadu’s Finance Minister Thangam Thennarasu in the 2024-25 budget announced a subsidy for jobs with pay above Rs 1 lakh per month at 30 percent in the first year, 20 percent in the second year, and 10 percent in the third year. This decision was trailed by Karnataka announcing a plan to introduce a GCC policy to attract higher investments in the sector on February 16.

GCC impact

Ramkumar Ramamoorthy, Partner at growth advisory firm Catalincs, said that GCCs generate high value jobs with minimal capital investment. In addition, the pace at which these jobs get created — often several thousands within a year — significantly enhances per capita income that spurs consumption leading to higher revenues for the states.

"This is the reason why states are vying with one another to attract them and help scale them rapidly," Ramamoorthy added.

Lalit Ahuja, founder & chief executive officer of ANSR Inc, a firm that builds, manages, and scales GCCs, said these captive centres are increasingly becoming a cornerstone of economic development and talent attraction in India.

Ahuja said Tamil Nadu is rapidly emerging as a destination of choice for both new GCCs and as an alternate expansion location for the incumbent GCCs, especially in sectors such as banking and financial services, manufacturing, and automobiles.

“Tamil Nadu government's initiative to provide substantial payroll subsidies for jobs in the new GCCs is bound to accelerate growth of the sector and help attract top talent and investment to the state,” Ahuja said.

India added 53 new GCCs in 2023, adding 14 in the last quarter of the calendar year, according to the Annual Strategic Review report by the industry body National Association of Software and Service Companies (nasscom). During the July-September period, Bengaluru added 7 new centres, followed by Hyderabad at 4, and Chennai and National Capital Region tied at 3 each.

Also read: GCCs gain traction among foreign SMBs seeking Indian tech talent

Over 1,500 GCCs currently employ approximately 16 lakh people in India, and could generate revenues of up to $60-85 billion by 2026, according to reports.