For years, India’s investment was focused on the Tier-1 cities like Mumbai, Delhi and Bengaluru. However, with increasing costs and over saturation, it has prompted to shift the focus. Tier-2 cities such as Indore, Lucknow, Coimbatore are fastly emerging as the next investment hotspots that offer the affordability, talent and infrastructural growth. This article explores why these cities are attracting investors, entrepreneurs and how these are shaping India’s next phase of economic growth.
Understanding Tier-2 Cities
Tier-2 cities in India are the emerging cities as strong contenders in the country’s urban growth. While these cities are smaller than the Tier-1 cities. They are witnessing the rapid growth and development across sectors like infrastructure, population and the economic growth. Why Tier-2 Cities?
- They have the population growth between 1 to 4 million people
- They offer a lower cost of living and affordable real estate.
- Have a growing talent pool due to well-established colleges and the institutions.
- Developing infrastructure, though not as mature as tier-1 cities
- These Tier-2 cities are often selected under the government initiatives like the Smart Cities Mission.
Key Examples of Tier-2 Cities
- Coimbatore is known for its Textile and manufacturing hub
- Surat is known for diamonds and textiles
- Lucknow is known for its administrative and cultural capital of Uttar Pradesh
- Indore is known for being the cleanest city in India with a booming startup ecosystem.
- Bhubaneshwar is known for its rapid transformation into a smarter city with increased IT growth.
Factors Influencing the Growth of Tier-2 Cities
1. Government Initiatives are made for the Tier-2 cities include:
- Modernization of urban infrastructure, improvising mobility, increasing sustainability.
- Enhancing the basic infrastructure services like water supply, sewage and green spaces.
- Promoting digital infrastructure and services like enabling the IT infrastructure and tech enabling spaces.
2. Infrastructural Improvements
- Construction and development of metro rail projects to ease urban mobility.
- Upgrades made to road networks and inter-city highway connectivity.
- Expansion and modernization of domestic airports for improving connectivity.
3. Cost Advantage
- Lower real estate prices makes it attractive for businesses and homeowners.
- Operating expenses and other utility expenses are much lower in tier-2 cities than the metros.
- Availability of affordable labour allows the businesses and companies to scale up their operations at lower costs.
Also read: Top 10 Real Estate Companies in India That Are Dominating the Market!
4. Migration Trends
- There was a significant reverse in the migration of professionals back to their hometowns post-COVID.
- Increase in the hybrid work model has reduced the dependency on metros.
5. Education and Talent Pool Availability
- Many reputed IITs and NITs are now present in Tier-2 cities.
- A large number of graduates of various streams like engineering, vocational courses, management enter the job market every year.
- The ecosystem is emerging heavily towards upskilling and entrepreneurial support
Booming Sectors Attracting Investment
1. Real Estate and Housing
- Lower land cost and constructional cost that attracts the builders and developers.
- Rising middle-class population that creates demand for affordable housing.
- Increased investments in the gated communities, townships and the upcoming style of co-living spaces.
- Growth of commercial properties like malls, office spaces and co-working hubs.
2. IT and Tech Startups
- Growing number of tech parks and incubation centers.
- Availability of skilled graduates from local engineering colleges.
- Lower operational costs compared to the Tier-1 cities.
- Examples: Indore’s startup ecosystem and Bhubaneswar’s IT-SEZs.
3. Retail and E-Commerce
- Tier-2 cities are new focus markets for major e-commerce players like Amazon, Flipkart and Meesho.
- Increasing internet penetration and digital payments adoption
- Increase in demand for organized retails, supermarkets and D2C brands.
4. Manufacturing and Logistics
- Proximity to industrial corridors and transport networks
- Stronger presence in the textiles city like Coimbatore, diamonds like Surat and auto-components like Aurangabad.
- Development in logistics parks and warehousing hubs.
5. Healthcare and Education
- Rapid growth in multi-speciality hospitals, clinics and other diagnostic centers.
- Investment in private schools, coaching centers and Ed-Tech penetration.
- Medical tourism and wellness centers and sectoral traction gain in smaller cities.
Case Studies: Success Stories from Tier-2 Cities
1. Coimbatore:
- It is known as the “Manchester of South India” for its stronger base for textile.
- It is the growing startup ecosystem for the tech and manufacturing sector.
2. Indore:
- Indore is ranked as India’s cleanest city for 6 consecutive years.
- It has reforms that are business friendly and supports startups.
3. Bhubaneshwar:
- Bhubaneshwar is the first city under the smart cities mission of India
- It is rising the IT and education hub in the eastern India
4. Surat
- Surat is the centre and the major global hub for cutting diamond and textiles industry.
- Investments are made in smart infrastructure and sustainable development.
Challenges to Watch Out For
- Infrastructure and Urban Planning Issues: While tier-2 cities are still in the developing phase, problems like traffic congestion, poor waste management and inadequate public transport needs more expansion.
- Talent Retention and Brain Drain: Many skilled graduates are leaving to tier-1 cities looking for better salaries, global exposure and better career opportunities. This makes it harder for local businesses to retain their talent and growth.
- Regulatory and Policy Bottlenecks: Investors often come across delays due to complex approval processes, inconsistent regulations and lack of co-ordination among the local and state governments authorities.
Future Outlook
Tier-2 cities are expected to grow rapidly over the next few years with better infrastructure and with rising population. This will create more job opportunities in the future and are ensured to boost the economic growth across sectors. These cities are about to play a key role in becoming a $5 tn economy.
Written by Kavitha Sugumar
