India has rapidly emerged as a hub for Global Capability Centres (GCCs), with nearly 1,600 multinational units spread across sectors such as finance, automobiles, consumer goods, apparel, and technology. These centres handle a wide range of activities from research and development to supply chain management, making India the services equivalent of China’s dominance in manufacturing hardware.
The rise of GCCs is driven by key advantages: a large pool of engineers, competitive labour costs, cheaper real estate, and simpler labour laws. This has positioned India as an attractive destination for global firms, many of which have established large research and operations hubs in cities like Bengaluru, Hyderabad, and Pune.
Policymaker Concerns
While GCCs now account for nearly 40% of India’s services exports, their rapid expansion has raised alarms in policy circles. The main concerns include:
- Overlap with IT services: Many GCCs perform similar tasks to outsourced IT firms, potentially diverting work from Indian IT companies.
- Job quality: Some centres are hiring science graduates at lower pay instead of engineering talent, raising questions about skill development and long-term employability.
- Lack of intellectual property (IP): Most GCCs do not vest patents or core innovations in India, limiting the country’s move towards becoming a true product nation.
- AI disruption: As artificial intelligence advances, both IT services and GCCs face risks if their work remains focused only on cost arbitrage.
IT Sector at a Crossroads
India’s IT services industry, which powered global digitalisation for four decades, is facing new challenges. Layoffs, skill mismatches, and the lack of breakthrough innovation have put the sector at risk. With GCCs absorbing more functions in-house, traditional IT firms may see a decline in demand unless they elevate their services to higher-value, innovation-led areas.
Towards a Product Nation
Policymakers are exploring ways to ensure that India’s GCC growth creates sustainable value. This includes proposals to require multinational companies to locate some of their intellectual property in India and incentives to encourage higher-end R&D functions. Officials believe that true resilience will come only if Indian centres handle core functions and generate IP that cannot be easily relocated.
The Road Ahead
The rapid expansion of GCCs has been a net positive for India, creating jobs and bringing global firms closer to the country’s workforce. However, unless the quality of work improves and India moves beyond cost-based outsourcing, the rise of GCCs could become a zero-sum game that weakens the IT services industry. The challenge now is to turn this growth into innovation that secures India’s long-term leadership in the global digital economy.
