India's IT services, global capability centres and data centres

Detail

Where this fits among the service activities

• Tertiary activities are services, such as trade, transport, communication and banking. They sell skills and services, not goods.
• Quaternary activities are knowledge-based services. They involve collecting, processing and sharing information, and research and development (R&D).
• Quinary activities are the highest level. They are services built on creating new ideas and on top-level decisions. People in this tier are sometimes called "gold-collar" workers.
• Outsourcing means a company hands some of its work to an outside firm, often in another country, to cut costs.
• BPO (Business Process Outsourcing): routine work, such as call centres, billing and data entry.

• KPO (Knowledge Process Outsourcing): work that needs expert knowledge, such as research, analytics, legal work and medical transcription.

• IT-BPM (Information Technology – Business Process Management): the industry made up of software and IT services, BPO/BPM work, engineering and R&D services, and software products.

Activity	Who owns the work	Typical work	Tier
IT services and BPO	A third-party Indian or global vendor	Coding, maintenance, call centres, back-office	Tertiary to quaternary
KPO / analytics	A third-party vendor	Research, data analysis, legal and medical work	Quaternary
Global capability centre (GCC)	The multinational itself	Its own R&D, product engineering, AI, finance	Quaternary to quinary
Data centre	Cloud firms, telecom firms, colocation firms	Storing and processing data	Physical base for all of the above

India's IT-BPM industry: size

• Revenue in 2023-24: about US$254 billion, excluding e-commerce. About US$200 billion of this came from exports [3].
• Latest industry estimate: about US$280 billion a year in 2024-25 (NASSCOM), mostly from exports.
• Recent growth: revenue rose 15.5% in FY22, compared with 2.1% in FY21. Exports grew 17.2% in FY22. New markets such as the Middle East and Latin America helped [6].
• Mix of work: IT services make up more than 51% of IT-BPM revenue [6].
• Jobs:
• IT-ITeS employed about 5.43 million people in 2022 [4].
• The technology industry had about 5.4 million workers in FY2023 [5].

• Today the figure is over 5 million.

• Share of exports: in FY2023 the technology industry earned about 53% of India's services exports [5].

Main hubs and how they spread

• First-tier hubs:
• Bengaluru (Karnataka), called the "Silicon Valley of India";
• Hyderabad (Telangana; its HITEC City area);
• Pune (Maharashtra);
• Chennai (Tamil Nadu);
• Mumbai (Maharashtra);

• Delhi-NCR: Gurugram (Haryana) and Noida (Uttar Pradesh).

• Newer tier-2 centres:

• Kochi (Kerala; Infopark);
• Coimbatore (Tamil Nadu);
• Jaipur (Rajasthan);

• Bhubaneswar (Odisha).

• The spatial pattern: most hubs are in southern and western India, plus NCR in the north. The east and north-east have few hubs except Kolkata and Bhubaneswar.

• Why firms move to tier-2 cities:
• rents and wages in the big metros are high;
• traffic jams and crowding are getting worse;
• local graduates are available;
• state IT parks offer cheaper office space.

Why the industry clusters in these cities

• Engineering talent: many engineering colleges in the south and west each year produce large numbers of graduates who can code.
• English skills: English-medium education makes it easy to work with clients in the USA and UK.
• Time-zone advantage:
• India runs on IST (UTC + 5:30), about 9.5 to 12.5 hours ahead of the USA;
• work handed over when the US office closes is done in India overnight;

• this is "follow-the-sun" (round-the-clock) work.

• Early government support:

• STPI (Software Technology Parks of India, set up in 1991) gave software exporters tax breaks, single-window clearance and high-speed satellite data links;

• SEZ (Special Economic Zone) rules later gave tax and customs benefits to export units.

• Agglomeration (firms gain by locating close to each other):

• many firms in one city → a large shared pool of skilled workers;
• specialist suppliers, venture capital and start-ups gather there;
• workers move between firms and ideas spread → the cluster keeps growing (Bengaluru is the best example).

Global capability centres (GCCs)

• Definition: a GCC is an office in another country (offshore) that a multinational company owns and runs itself. It does that company's own technology, R&D, analytics, finance and engineering work.
• This is not third-party outsourcing. The work stays inside the company.

• GCCs used to be called "captive centres".

• Scale:

• India has over 1,700 GCCs, employing over 19 lakh (1.9 million) people (2024) [2];

• over 400 new GCCs opened in the past five years [2].

• Main clusters: Bengaluru, Hyderabad, Pune, Chennai, Mumbai and NCR [2]. Gurugram (Haryana) has some of the largest single GCCs [2].

• Forecast for 2030: about 2,400 GCCs employing over 2.8 million people, in a sector worth about US$105 billion [2].
• Change in the kind of work:
• GCCs began with back-office support;
• they now do high-end engineering, product design, chip design and AI work;

• so GCCs are where India's quaternary and quinary tiers are actually seen at work.

• State GCC policies: Karnataka, Gujarat and Uttar Pradesh have GCC policies that offer incentives to attract these centres.

Data centres

• Definition: a data centre is a building full of servers (powerful computers) that store and process digital data. It supports cloud services, apps, banking, government services and AI.
• What a good site needs, and why:
• Cheap, reliable power:
  • servers run 24 hours a day and produce a lot of heat;
  • so power is the largest cost;
  • operators now prefer renewable power (solar, wind, hydro).
• Water or a cool climate for cooling:
  • hot servers need cooling;
  • cold places such as the Nordic countries can cool servers with outside air;
  • hot places need large amounts of water or electricity for cooling.
• Closeness to submarine cable landing stations:
  • most international internet traffic travels through undersea cables;
  • a site near the place where cables come ashore gets faster connections (low latency) at lower cost.

• Low disaster risk: the site should be safe from earthquakes, floods and cyclones, and should have a stable government.

• Capacity in India: about 375 MW in 2020, rising to about 1,500 MW by 2025 [7]. It is expected to reach nearly 8 GW by 2030 [8]. (Data-centre size is measured in megawatts (MW) of power used, not in floor area.)

• Indian clusters, ranked:

Rank	Cluster	State / coast	Why it leads
1	Mumbai-Navi Mumbai (about 19°N)	Maharashtra, west coast (Arabian Sea)	About 790 MW operational [8]; India's busiest cable-landing city; finance capital
2	Chennai (about 13°N)	Tamil Nadu, east coast (Bay of Bengal)	About 305 MW [8]; cable landing point that links to South-East Asia
Next	Hyderabad, Delhi-NCR, Pune	Inland	Big IT and GCC demand; lower risk from cyclones and coastal flooding

• Other locations include Bengaluru and Gujarat [8].
• Global hubs:
• Northern Virginia, USA: the world's largest cluster ("Data Center Alley", Loudoun County). It has dense fibre networks and Atlantic cables nearby.
• Ireland (Dublin): a cool climate, English-speaking, and an entry point to the EU market.

• Nordic countries (Norway, Sweden, Finland, Iceland): cold air for free cooling, and cheap hydroelectric and geothermal power.

• Policy:

• MeitY draft Data Centre Policy (2020) aimed to give data centres "infrastructure" status and to promote data-centre parks;

• Union Budget 2026-27 announced a tax holiday until 2047 for foreign cloud service providers that serve the world from data centres in India, plus a 15% cost-plus safe harbour when the Indian data-centre provider is a related company [10].

• Issues:

• AI's demand for power and water:
  • AI servers use far more electricity than ordinary servers;
  • this puts pressure on power grids and on cities already short of water, such as Chennai and Bengaluru;
  • it also raises carbon emissions unless the power is renewable.

• Data rules and data localisation (keeping data stored inside India):

  • the Digital Personal Data Protection (DPDP) Act, 2023 governs how personal data is handled;
  • the DPDP Rules, 2025 were notified on 14 November 2025, with 18 months of phased compliance [9];
  • Consent Managers must be companies based in India [9];
  • such rules push firms to build data centres in India.

• Submarine cables themselves are covered under world transport and communication.

Prelims Hooks

• STPI (Software Technology Parks of India) was set up in 1991. It gave early tax and data-link support to software exporters.
• GCC = a multinational's own offshore unit, not a vendor. "Outsourced to a third party" describes BPO/KPO, not a GCC. GCCs were earlier called captive centres.
• India: over 1,700 GCCs, about 1.9 million jobs (2024); about 2,400 GCCs forecast by 2030 [2].
• India's largest data-centre cluster is Mumbai-Navi Mumbai; the second is Chennai. Both are submarine-cable landing cities. Mumbai is on the Arabian Sea coast and Chennai on the Bay of Bengal coast.
• India's data-centre capacity: about 375 MW (2020) → about 1,500 MW (2025) [7].
• Global data-centre hubs: northern Virginia (USA), Ireland, the Nordic countries. The Nordics' advantage is a cold climate plus hydro/geothermal power.
• The DPDP Act was passed in 2023; the DPDP Rules were notified in November 2025 [9].
• IT services make up more than half of IT-BPM revenue [6]. The tech industry earns about 53% of India's services exports (FY2023) [5].
• Tier-2 IT centres to remember: Kochi (Kerala), Coimbatore (Tamil Nadu), Jaipur (Rajasthan), Bhubaneswar (Odisha).

Mains Points

• Location factors (GS-I, industrial location): IT-BPM shows footloose but agglomerated location. "Footloose" means the industry is not tied to raw materials, because its input is people. It still clusters in cities that have talent, English skills, STPI/SEZ support and agglomeration benefits. The result is a south-west-heavy regional imbalance. Crowding in metros is now pushing growth to tier-2 cities.
• Moving up the value chain (GS-III): the shift from BPO to KPO to GCCs doing R&D, chip design and AI moves India from tertiary into quaternary-quinary work [2]. It needs better higher education, stronger IP (intellectual property) protection, and state GCC policies that also reach tier-2 cities.
• Data centres as infrastructure (GS-III): siting depends on power, cooling water, cable landings and low hazard risk. Rapid growth from about 375 MW to about 1,500 MW, heading towards about 8 GW [7][8], raises concerns about grid load, water stress in Chennai and Mumbai, coastal cyclone and flood risk, and carbon emissions. Possible answers: renewable power purchase, air or liquid cooling, and spreading sites inland (Hyderabad, NCR, Pune).
• Data governance: the DPDP Act 2023 and Rules 2025 [9], together with the 2026-27 tax holiday for foreign cloud firms [10], encourage data storage inside India. That supports digital sovereignty, but it also means building more energy-hungry infrastructure.