Next GCC wave in Tier-2 cities needs payroll incentives, Grade-A infra, cluster strategy

With India already home to over 1,800 GCCs, the focus is now shifting from growth to sustainability and long-term competitive edge.

• Budget 2025 announces national framework to boost GCCs in Tier-2 cities
• Industry calls for payroll incentives, top infrastructure, and cluster strategies
• Transfer pricing, tax predictability seen as key challenges for GCC expansion

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India’s next phase of Global Capability Centre (GCC) expansion will be defined by how quickly the ecosystem can scale beyond large metros, with industry leaders calling for payroll-linked incentives, Grade-A infrastructure, and cluster-led strategies to make Tier-2 and emerging hubs competitive for global enterprises.

ANSR founder and CEO Lalit Ahuja, in his pre-Budget expectations, said the government’s policy focus should now move towards strengthening India’s competitiveness as GCC work shifts towards higher-value mandates. He said Tier-2 expansion will need deeper investment support and a clearer national policy signal.

“Budget 2025 has made a key announcement, focusing on a national framework to guide states in promoting Global Capability Centres in Tier-2 cities,” Ahuja said.

On February 1, 2025, Finance Minister Nirmala Sitharaman said that a national framework will be set up to guide states in promoting GCC in emerging tier 2 cities, a sector poised to contribute 3.5 percent of India’s GDP by 2030.

Also, read: India’s GCC framework in Budget 2025: Industry lauds but urges deeper collaboration

With India already home to over 1,800 GCCs, the focus is now shifting from growth to sustainability and long-term competitive edge, Zinnov CEO Pari Natarajan told Moneycontrol. “The next challenge is not growth, but sustainability, and competitive edge,” Natarajan said.

To deepen India’s leadership as a global GCC destination, he called for coordinated efforts at both the national and state levels, with the Centre focused on strengthening the existing GCC framework and improving execution.

“Coordinated efforts at both the national and state level are now essential,” he said.

Also, read: Infra, talent, tax breaks: What Karnataka, Telangana, Tamil Nadu want from Centre’s Tier-II GCC policy

Talent readiness, skilling push

Zinnov’s Natarajan also flagged talent readiness as the biggest differentiator for the next phase.

“Talent readiness is the real differentiator going forward,” he said.

He further added that India’s advantage lies not only in volume, but in “velocity and value”, and that national skilling efforts must move faster from scale to specialisation, aligned to GCC demand in AI, data, product engineering, and cybersecurity.

Similarly, Ahuja argued that national policy and incentives should prioritise capability-building in emerging hubs, with targeted support to strengthen India’s talent pipeline for specialised GCC work.

Also, read: Indian GCCs retrain staff as AI engineers to combat talent shortage

Infrastructure, incentives, cluster strategy for Tier-2 hubs

As GCCs expand beyond metros, both industry voices pointed to execution at the state level as critical.

“Expansion beyond metros will define the next phase of GCC growth,” Natarajan said.

The government can enable scale by creating harmony across state-led incentives and setting clear readiness benchmarks, while states must deliver through payroll subsidies, Grade-A infrastructure, cluster-led strategies, and domain partnerships.

“Payroll subsidies, Grade-A infrastructure, cluster-led strategies, and domain partnerships matter here,” Natarajan said.

Interestingly, Karnataka’s cluster approach, payroll-linked incentives in states like Uttar Pradesh and Madhya Pradesh, and Bosch’s engineering and R&D footprint in Coimbatore are examples where policy and execution have aligned.

Transfer pricing friction remains a pain point

Natarajan flagged transfer pricing as a persistent challenge for GCCs as they move into higher-value and IP-linked work. “Transfer pricing remains one of the most persistent friction points,” he added.

He called for institutional support within the existing framework through a dedicated transfer pricing facilitation desk supported by AI-led guidance and human expertise, and a digitised APA filing portal to improve predictability and reduce compliance burden.

While Zinnov pointed to transfer pricing and cumbersome APA processes as key friction points for GCCs moving into high-value work, Nasscom flagged cross-border withholding and classification disputes as major compliance challenges for the IT and GCC sector.

“A clarification that payments representing salary already subject to withholding under section 192 are not subject to withholding under section 195 would remove duplication and provide welcome certainty,” Nasscom said in its pre-memorandum Budget note.

Ed-tech GCC Curriculum Associates also flagged the need for greater tax and regulatory predictability for GCCs as they scale higher-value work. “Greater predictability on long-standing tax and regulatory issues, particularly transfer pricing, permanent establishment norms, international taxation, and GST treatment, can materially reduce friction in cross-border operations,” said Vinodh Nagarajan, Director of Accounting and Tax, Curriculum Associates India.