Background
Global capability Centres (“GCCs”) have taken centre stage today because of their contribution towards the growth and expansion of multi-national corporations (“MNCs”) and towards boosting the economic growth of many developing countries in which they are located.[1] These centres are set up to primarily take on a service role for the global group of the MNCs. Evolving from back offices and cost-arbitrage centres, GCCS have transformed into potential alternative technological and strategic development headquarters. Today, many regions in developing economies, including in India, have started competing to establish themselves as a GCC hub and emerge as a “destination of choice”. Given the transformative role GCCs play in job creation, technology advancement, and skill enhancement, and positioning India at the forefront of innovation and service delivery, many GCCs in India are vying for that spot. With an estimated 1,700 GCCs engaging 1.66 million employees to generate an annual revenue of USD 64.6 billion, India qualifies as a “tried-and-tested” GCC-friendly ecosystem. In the backdrop of India’s “techade”, the market size of the country’s GCC ecosystem is projected to surpass USD 100 billion, which could propel India to achieve its ambition of becoming a USD 1-trillion economy.
Karnataka accounts for approximately one-third of India’s GCCs and a third of the GCC market size. NITI Aayog ranked the state number 1 in the India Innovation Index 2021. It is no secret that the capital city of Bengaluru – India’s “Silicon Valley” and “unicorn capital” and the world’s second largest hub for AI talent – plays a large part in Karnataka’s massively successful numbers. In an attempt to fuel GCC expansion “Within Bengaluru” and “Beyond Bengaluru” to other parts of Karnataka, the Government of Karnataka took the novel step of introducing the “Karnataka Global Capability Centre (GCC) Policy 2024–29” (“Draft GCC Policy”), a nationally and globally first-of-its-kind policy curated to specifically incentivise GCC expansion.
Karnataka’s GCC-Centric Policy: Highlights and Key Insights
The policy marks the first-ever state-driven policy to cater specifically to GCCs in India. Interestingly, providing a definition for GCCs for the first time, the policy states:
“Global Capability Centres (GCCs) are fully owned, integrated hubs established by multinational corporations that are headquartered outside India, to leverage global talent, build intellectual property, and enhance operational efficiency. These centres serve the parent organization, managing a range of global functions like research and development, IT services, business process outsourcing, and more, ultimately driving innovation, reducing costs, value addition, and expanding the corporation’s global impact.”[2]
On the first glance, the policy is like any other incentive-offering policy that seeks to drive/grow something, but it goes beyond in that it tries to create value for the GCCs by using the policy to reimagine Karnataka’s GCC ecosystem by 2029. The policy focuses on four (4) strategic pillars to build this ecosystem:
- Talent – focusses on developing and upskilling the people who will work in the GCCs today and tomorrow;
- Local ecosystem – focusses on building a network among GCCs and providing avenues/platforms to enable GCCs to seamlessly collaborate with Karnataka’s vibrant local innovation ecosystem;
- Infrastructure and incentives – introduces the “Beyond Bengaluru” concept and incentives covering reimbursement of rent, stipends, EPF contributions, etc; and
- Regulatory easing – scales the ease of doing business for MNCs and GCCs.
Another strong theme emerging from this policy is “Thought Leadership”, which includes, among other things, a proposal to (i) build a GCC Acceleration and Investment Council to steer Karnataka’s GCC initiatives and provide strategic guidance; (ii) to fund, promote, and support innovation challenges to ideate innovative solutions; (iii) set up Innoverse as a catalyst for deep tech innovation; (iv) the proposed Centre of Excellence (“CoE”) for Artificial Intelligence (“AI”) in Bengaluru on the triple helix model; (v) incentivising IP creation, registration, and retention; and such.
The policy reflects a positive move, showing the government’s intent to recognise GCCs and their impact and use them as a springboard for development and economic growth. Evidence of this lies in Karnataka’s broad range of fiscal and non-fiscal benefits, split across different parts of the state to both allow GCCs to continue setting up in Bengaluru (the state’s GCC hub) and extend the rewards of the GCC boom to beyond Bengaluru. The policy does not propose any additional regulatory compliances on the GCC, but it affords them with additional benefits beyond what the state currently offers to non-GCC entities setup by MNCs.
The policy-conferred benefits and incentives follow a gradation by employee footfall starting from 100. The policy also introduces and references “nano GCCs”, which are smaller, specialist centres requiring lesser human capital (i.e. workforce between 5 and 50). While they require lesser human capital, they usually engage top-tier talent in techno-business roles to drive innovation and deliver cutting-edge products and services. The policy provides various concessions for “nano GCCs” set up in “Beyond Bengaluru” areas and does not subject them to any employment or investment thresholds; however, it does not mention “nano GCCs” in the context of the “Within Bengaluru” plan. Considering that “nano GCCs” can find it challenging to create a self-sustaining social ecosystem by themselves, it might be prudent to extend the incentives “Within Bengaluru” as well. Moreover, since such “nano GCCs” are often set up with comparatively lower risk and with the intent of enabling expansion with agility, allowing them to set up in thriving GCC ecosystems/communities could help in their journeys from “nano” to “traditional” GCCs.
Decoding the Strategic Pillars of the Karnataka’s Draft GCC Policy
The policy discusses and proposes a range of fiscal and non-fiscal incentives, which can be clubbed under four (4) key vertical pillars as follows[3]:
| Strategic Pillar | Policy Actions/Proposals |
| Talent | The policy proposes the following to scale and upskill talent available to GCCs: Skilling initiatives: The policy proposes multiple incentives to support a GCC with skilling its people. To this end, it proposes to reimburse certain expenses in relation to the skilling initiative (including technical skilling initiatives and soft skill enhancement initiatives) for graduates and diploma holders. Further, the government also has committed to fund the development of industry-oriented future skill courses and master faculty training in consultation with the industry at autonomous/state government universities. Further, it also proposes to sponsor and partner with leading educational institutions to provide relevant masters and certification programs, support international exchange programs, support leadership recognition awards, and provide access to continuous learning platforms.Internships: The policy proposes to reimburse 50 per cent of the internship stipend for interns recruited at the GCC for a term of 3 months (up to INR 5,000 per month – equivalent to USD 60) for a maximum of 20,000 interns/year.Joint research:The policy proposes to fund five (5) projects to support industrial applications of academic research. Recruitment assistance: The policy proposes to provide recruitment assistance in the 10-50 per cent range, basis the employee footfall is between 100 and 1000+ for GCCs establishing or expanding in the “Beyond Bengaluru” area.Matchmaking platform: The government will support the setting up of a platform to facilitate collaboration and interaction between industry and academia. |
| Local Ecosystem | The policy aims to foster collaboration and development among stakeholders to drive sustainable growth and innovation through the following initiatives: Establishing innovations labs/ CoEs by funding 40 per cent of the total Capex (capital expenditure) for setting up two (2) such CoEs “Within Bengaluru” and five (5) such CoEs “Beyond Bengaluru” subject to an overall capped investment by the government of INR 40 million and INR 50 million (approximately USD 480,000–USD 600,000) each, respectively. Driving cross-collaboration between start-ups and GCCs by allowing start-ups to utilise the existing labs and innovation spaces of GCCs.Promoting and funding innovation challenges and conferences organised within the stateby/with GCCs. Cluster Anchor Groups to facilitate matchmaking for GCCs planning to setup in the “Beyond Bengaluru” clusters. |
| Incentives and Infrastructure | The government proposes to drive balanced economic development and equitable growth across the state through strategic interventions. To this end, it has proposed the following incentives “Beyond Bengaluru” to create a conducive environment for business and innovation hubs: Rental assistance: The government proposes providing annualreimbursement for rent related expenses by GCCs up to 50 per cent for 10 GCCs with 100+ employees capped at INR 5 million (approximately USD 60,000) and for 6 GCCs with 500+ employees capped at INR 20 million (approximately USD 240,000).Co-working spaces: It proposes to incentivise the setting up of new co-working spaces by offering them with reimbursement for vacant seats costs for a three (3)-year period from the date of operations. EPF contribution reimbursements: It proposes to reimburse the employee provident fund (employee social security equivalent) contributions up to INR 3,000 per month (approximately USD 36) per employee, provided the employees remain in continuous employment for a two (2)-year period. The government will provide this for 25 GCCs annually for the first two (2)-year period from the date of their commencement, which can be availed for 30 per cent of the GCCs employees capped at 250 employees per GCC.Scaling R&D infrastructure:It proposes to provide grants focussed on setting up testing and prototyping facilities for emerging technologies including AI and related facilities. Scaling telecom infrastructure:It proposes the reimbursement of 25 per cent of the internet expenses for the first three (3) years of the GCC’s operations.Power tariff concessions:It proposes a provision for the GCCs to switch from commercial to industrial power tariffs. Further, a 100 per cent exemption from electricity duty for a five (5)-year period. Property tax: It proposesreimbursement for 30 per cent of the property tax incurred by the GCC for a three (3)-year period from the commencement of their operations. |
| Regulatory Easing | The policy also makes proposals towards enhancing the ease of doing business and simplifying and streamlining the regulatory framework for GCCs. To showcase the governments commitment towards regulatory easing, it has proposed the following: GCC incentive clinic: The government will help establish a dedicated platform/operational helpdesk the GCCs can leverage to resolve and discuss their challenges. It also proposes conducting regular sessions with panels comprising strategy consultants; real estate, tax, and legal experts; and government officials.Quality certification and financial assistance:The government will provide reimbursement for up to 50 per cent and 80 per cent for quality certification fees for GCCs setup “Within Bengaluru” and “Beyond Bengaluru”, capped at INR 600,000 and INR 800,000 (approximately USD 7,000 to USD 9,600), respectively. Each GCC would be able to claim this benefit for three (3) certifications per year.Intellectual property incentives:The government will provide reimbursements of 50 per cent of the statutory fees for filling patents capped at INR 200,000 and INR 300,000 (approximately USD 2,400 to USD 3,600) for GCCs setup “Within Bengaluru” and “Beyond Bengaluru”, respectively. The GCC can claim this incentive for domestic patents per year during the policy period.Regulatory approval for connectivity: The government will approve permissions within 30 working days for “Right of Way” for laying of cables and erecting of towers for antennae. |
Conclusion
In the backdrop of increasing competition to attach foreign direct investments and create jobs across grade and the ancillary services sector, Karnataka’s introduction of the GCC Policy is a welcome move. It is bound to open the floodgates for other state governments to introduce similar policies, followed by national policies soon not just at the India level but also in other jurisdictions. The policy is a testament to the success and impact of GCCs on the country’s economy and offers a glimpse into the transformative nature and capability of these GCCs, be it transforming into alternate strategic headquarters or becoming springboards for economic prosperity and opportunity, with adequate and meaningful regulatory exemptions and incentives. A national-level policy is still awaited, but the Government of Karnataka’s draft policy has set the standard nationally and globally. It is imperative to treat this as a wake-up call to establish systems that can capitalise on the GCC market. Lastly, considering implementing the policy requires various state ministries and departments to come together and collaborate, it remains to be seen how soon the government can implement these incentives by issuing the requisite amendments to the existing laws and policies to enable these new incentives to become a reality.
GCC Blog Series
For further information, please contact:
Bharath Reddy, Partner, Cyril Amarchand Mangaldas
bharath.reddy@cyrilshroff.com
[1] You can find an introductory article on GCCs here – Doubling down on a competitive advantage (moneycontrol.com).
[2] Section 6, page 56, of the Draft GCC Policy.
[3] Please note that we have captured these proposals from the Draft GCC Policy, further please note that all references to ‘government’ in this section are to the Government of Karnataka.
