India a favourite of Global Capability Centres

India is a GCC favourite in a hugely competitive global market, the Economic Survey said on Monday asserting that the government has a crucial role in facilitating entry of global players keen on setting up Global Capability Centre operations here.

Lauding India's success story on the GCC front, the Survey said government support for identifying new business models for partnerships, simplifying the entry process, and emphasising trust and data security, among others, will further encourage the location of GCCs in India.

More than 150 multinationals have set up their GCCs in India over the last couple of years, it said tracing the journey from the "humble beginning of offshoring by Texas Instruments" all the way to India now emerging as a global favourite for GCC growth.

Put simply, Global Capability Centres or GCCs are offshore units set up by multinational companies to carry out a range of strategic functions for the parent. These units which previously engaged in simple back office functions have now evolved into handling some of the most complex functions across an organisation’s value chain.

“As more global players eye India to set up their GCC operations, the government has a crucial role in facilitating their entry,” the Survey highlighted.

Citing GCCs’ contribution to their parent organisations’ success and in propelling economic growth in India, the survey said they account for more than 1 per cent of the country’s GDP, a share that will only grow further.

“Starting with the humble beginning of offshoring by Texas Instruments by setting up its office in Bengaluru in 1985, India has come a long way to being at the epicentre of GCC growth,” it said.

In 2012, about 760 GCCs were operating out of India, that number swelled to over 1,000 in 2016 and 1,600 GCCs as of March 2023.

GCCs provide bespoke services in operation, product development and innovation. They operate across all IT, BPO, engineering, and software product development service lines, delivering complex work that requires a significant understanding of business context and imperatives.

“They have made a mark in key industry verticals such as banking and financial services, software, telecom and semiconductors, with a growing concentration in aerospace, automotive, oil and gas, healthcare and pharma,” the Survey stated.

The Survey also acknowledged government support in GCCs proliferation, mentioning, in particular, strategic interventions like Digital India that have streamlined online approvals and licensing processes.

“Initiatives like streamlined tax regulations and compliance procedures for foreign companies for setting up GCCs, flexible labour laws, and single window clearance systems for faster approvals have eased the business process,” the Survey said.

It further noted that improved digital infrastructure — high-speed internet, data centres — has been a boon for GCC operations, and also highlighted proactive approach of States like Karnataka, Telangana and Tamil Nadu in expanding GCC landscape.

The Survey also observed that GCCs are increasingly evaluating tier-II towns to expand their operations, influenced by the reverse migration seen during the pandemic and the cost arbitrage offered by such relatively under-penetrated markets.

The recent thrust on infrastructure development in these cities has also added to their appeal, it stated.

While US and Europe-based MNCs have been establishing their capability centres for a long time, international players from the Asia Pacific region, especially Japan and South Korea, have begun setting up their R&D/innovation centres in India over the past few years.

“Although other countries with GCC presence have emerged recently, India remains a GCC favourite in a highly competitive global environment due to its ample talent endowment and cost advantage,” it said.