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In part V of our series on key legal considerations for establishing global capability centres (“GCCs”) in India,[1] we discuss the key factors to keep in mind when determining the location where the GCC is to be set up here.
Introduction
With rapid expansion and growth of global capability centres (“GCCs”) in India, many MNCs are either looking to scale their GCCs or set-up a GCC here in the foreseeable future. Given that different cities/ states offer vastly different regulatory and policy benefits/ incentives; and locational advantages, it is crucial for a foreign entity (“Foreign Entity”), seeking to set-up a global centre in India, to understand the different options and ramifications of these decisions before they are set in stone. Once the Foreign Entity has determined the corporate structure for the GCC and the model it seeks to implement,[2] the next step is to choose the location. Given that the location of the GCC plays a significant role in its long-term growth, sustainability and success, outside of looking for proximity to talent hubs, resource availability, operational costs, connectivity, cultural compatibility, etc., it is equally important to assess the regulatory and legal landscape. This is especially important for Foreign Entities that do not ordinarily operate out of the country where they are desirous of setting up a GCC.
India: The ‘destination of choice’ for GCCs globally
Around 1,580 GCCs (expected to rise by 20% to 1,900 by 2025)[3] have leased office space of around 60-62 million square feet between 2023-25[4] to gainfully employ 1.66 million individuals[5], proving that India has emerged as a global hub and a ‘destination of choice’ for GCCs. The massive success and impact of GCCs on the Indian economy has led to a central push towards facilitating ‘ease of doing business’ and a tried-and-tested environment. From directly providing regulatory exemptions to Foreign Entities to set up GCCs, to driving R&D and people development, India’s multi-pronged approach to bolster the GCC ecosystem is a testament to its friendly regulatory, commercial and political environment. The vastness of the Indian GCC ecosystem and its appetite for more GCCs is evidenced by the fact that the share of the Forbes 2000 global companies that have GCCs in India is set to grow from at least 20% in 2023 to 55% by 2030.[6]
Handpicking GCC friendly locations in India
To handpick locations with friendlier regulatory regimes, a Foreign Entity may consider either setting up in: (i) regulated economic territories/ zones and/ or (ii) in cities/ states where local governments have provided regulatory relaxations to Foreign Entities setting up GCCs in India.
Setting-up in specially regulated economic territories/ zones
In India, there are certain territories/ areas that are qualified as special economic zones (“SEZs”) and international financial service centres (“IFSCs”), which are governed and regulated by specialised regimes and have been created to provide certain incentives for business expansion. However, if a Foreign Entity wishes to set up its GCC in an SEZ, it will have to obtain prior approval under the Special Economic Zones Act, 2005[7], and if it wants to set up a ‘global in-house centre’ (“GICs”) in an IFSC, it will have to obtain prior approvals from the International Financial Services Authority (Global In-House Centres) Regulations, 2020[8] (“GIC Regulations”), ie: consider the Gujarat International Finance Tec-City (“GIFT City”)[9], which is currently the only IFSC in India. If set up in the GIFT City, the following fiscal benefits inter alia would be available under the indirect tax laws, i.e., exemption from customs duty, goods and services tax for procuring goods or services into the GIFT City/ SEZ unit. However, benefits under direct tax laws are restricted only to ‘financial services’ units set up in the GIFT City and do not extend to IT/ IT enabled services (“ITeS”). On the other hand, to set-up in an SEZ, a Foreign Entity could consider any state that has an SEZ. Hence, depending on the proposed services a GCC wishes to provide, zones/ regions with the most appropriate available benefits can be analysed.
Choosing cities/ states with the friendliest regulatory exemptions
When choosing between states/ cities, the Foreign Entity should consider regulatory exemptions offered by each state/ city. With the advent of ‘techade’[10] and the evidence of the massive impact that GCCs can have on the economy of a state, different states are competing to become the ‘destination of choice’, by implementing different policies, including attractive regulatory exemptions, to facilitate ease of doing business, to directly/ indirectly invite GCCs and incentivise their growth and expansion. Some states have expressly recognised GCCs under their state-level regulations and policies to incentivise Foreign Entities to set up more GCCs in their respective territories. Below is an indicative list of express call outs under state policies:
- Karnataka, vide its Handbook on Digital Economy Policies, Programs & Incentives, expressly recognises Bangalore as the “destination of choice for platform engineering GCCs”;[11]
- Telangana, vide its ICT Policy 2021-26, commits to scaling the GCC expansion by “strategically strengthening the ecosystem and easing the process of entry and doing business”;[12]
- Uttar Pradesh, vide its IT and ITeS Policy, has included GCCs within the ambit of ITeS, which allows them to claim certain fiscal benefits and non-fiscal benefits;[13]
- Andhra Pradesh, vide its Industrial Development Policy 2023-27, commits to provide support to companies/ MNCs setting up a GCC.[14]
Additionally, locations should be chosen basis sufficient ‘Grade A’ commercial buildings and robust infrastructure to ensure a conducive environment for growth and operational efficiency.
Conclusion
The strategic placement of GCCs in regions with government incentives can drive substantial growth and also help in cost cutting. Additionally, selecting sites with top-tier commercial buildings and infrastructure supports efficient operations and helps maintain high employee productivity. These locations not only attract top talent, but also foster an environment conducive for innovation. Prioritising these factors ensures that GCCs can thrive and deliver maximum value. Ultimately, strategically locating a GCC is crucial for its sustained success and maintaining its competitive advantage.
[1] You can read part I of the series here –Global Capacity Centres (GCCs) take centre stage in fuelling global growth | India Corporate Law (cyrilamarchandblogs.com); part II hereStrategic structuring and modelling Global Capability Centres (GCCs) in India: How to set up | India Corporate Law (cyrilamarchandblogs.com); part III here Strategically building a workforce for Global Capability Centres (GCCs) in India | India Corporate Law (cyrilamarchandblogs.com); and part IV here Taxation landscape of Global Capability Centres (GCCs) in India | India Tax Law (cyrilamarchandblogs.com)
[2] Strategic structuring and modelling Global Capability Centres (GCCs) in India: How to set up | India Corporate Law (cyrilamarchandblogs.com)
[3] Total number of operational GCCs in India to increase 20% by 2025: CBRE | News – Business Standard (business-standard.com)
[4] GCCs to lease 62 million sq. ft. in India by 2025: CBRE Asia report | News – Business Standard (business-standard.com)
[5] Global capability centres go beyond Tier-I cities, chasing cost and talent | Company News – Business Standard (business-standard.com)
[6] Global Capability Centers: Global capability centers follow top tech talent to India’s heartland – The Economic Times (indiatimes.com)
[7] An approval would have to be sought by making an application pursuant to Section 15, Special Economic Zones Act, 2005
[8] Regulation 2(1)(e) of the GIC Regulations defines a ‘global in-house centre’/ GIC as “a unit set up in the International Financial Services Centre for providing support services, directly or indirectly, to entities within its financial services group, including but not limited to banks and non-banking financial companies, financial intermediaries, investment banks, insurance companies, re-insurance companies, actuaries, brokerage firms, funds, stock exchanges, clearing houses, depositories, and custodians, for carrying out a financial service in respect of a financial product”. Please note that if the entity being set up does not qualify as a GIC above, it will not be regulated by the GIC Regulations regardless of being set up in an IFSC.
[9] It is pertinent to note that GIFT City is also a special economic zone (“SEZs”) under the Special Economic Zones Act, 2005.
[10] ‘Techade’ is a word coined by Narendra Modi, the Prime Minister of India, to describe the decade being dominated by technologies.
[11] Page 2, Handbook on Digital Economy Policies, Programs & Incentives, accessible here – KDEM – Digital Economy Policies.cdr (karnatakadigital.in)
[12] Page 8, Telangana’s ICT Policy 2021-26, accessible here – Telanganas-2nd-ICT-Policy-2021.pdf
[13] Page 12, IT and ITeS Policy of Uttar Pradesh, 2022, accessible here – IT-and-ITeS-Policy-of-Uttar-Pradesh-2022 (up.gov.in)
[14] Paragraph 10.3.1, page 42, Industrial Development Policy 2023-27, Andhra Pradesh, accessible here – GO MS NO 22 IDP .pdf (apindustries.gov.in)
