Why India Will Continue To Be A Hub For GCCs
Global Capability Centres (GCCs) in India are doing very well, and India’s exports of services are going reasonably well, despite the concerns around AI, says Axis Bank's Chief Economist, Neelkanth Mishra (now appointed Executive Director, World Bank), in an interview with BW Businessworld.“Because of AI, workflows and organisation structures are likely to change meaningfully. In our view, the pattern of outsourcing, which started about 35 years ago, has grown incessantly because it required, at a global economic level, expertise to be built in a few firms.And those firms then made those resources available to whoever needed them, and optimised on that.So, an outsourced structure was the best and the most efficient way of organising workers,” said Mishra.
“As Large Language Models start doing a large part of the coding and testing, and the time taken from business requirements being specified to implementation shrinks, the organisation boundary itself may shift, meaning that it might make sense for firms to start to insource more, or at least outsource less,” he added.
“The Indian advantage of manpower being available at, say, USD 500 or USD 700 a month, means it's still going to be an advantage, because the same resource in the US would cost USD 8,000 or USD 10,000. So, replacing, say, a USD 10,000-a-month engineer with a USD 500-a-month engineer, along with a USD 200-a-month LLM licence, may be better.So, the outsourcing, the move of work to India, may still continue, but it may happen to GCCs and not necessarily to IT services firms,” Mishra said.
“While this is the current expectation, we still need to understand how exactly this will evolve, because how and when AI stabilises is still a question mark.How quickly the process flows and organisational structures are going to change, is something that we'll discover in the next 3-5 years,” he added.
The Economic Survey 2024-25 said that GCCs in India have moved much beyond their traditional back-office roles to “become strategic hubs for engineering R&D, particularly in aerospace, defence, semiconductors, and advanced manufacturing.”.
GCCs, which account for around 1.8 per cent of national GDP, will have a much greater economic impact, moving forward. A recent CII report said that “their net economic impact may rise to around USD 600 billion by 2030”. The same report said that around 60 per cent of GCCs look to scale up their operations here.
Notwithstanding the expected slowdown in outsourcing, as explained by Mishra, India has the potential to host 5000 GCCs by 2030, with banking, insurance, retail, technology, media, and telecom as the major sectors, said the CII report.
Currently, India hosts 50 per cent of GCCS worldwide, where, on average, 3 new GCCs are set up every two weeks. Tier 2 and 3 cities are increasingly being seen as options for GCC facilities.
The CII report also said that among the reasons why India emerged as a hub for GCCs are the availability of a talented workforce, cost advantage, infrastructure, the startup ecosystem and the government policy push, and business continuity.
A PIB release last year said: “Many multinational companies in India have set up GCCs to handle verticals like business processes, IT services, R&D centres, innovation hubs, customer service centres, and other key functions. In just five years, their combined revenue has jumped from USD 40.4 billion in FY19 to USD 64.6 billion in FY24, growing at a healthy pace of 9.8 per cent annually. These GCCs now employ over 19 lakh people across the country.”
The CII report, quoted earlier, said that the history of India a preferred destination for GCCs, can be said to have four phases in its evolution:a) Right of IT support and Birth of captives (1990-2005); b) Expansion into multi-function delivery and hybrid sourcing (2005-2015); c) GCCs as Innovation and digital hubs (2015-2022); d) Global Enterprise Hubs of Resilience and Digital Acceleration (2022 onwards).
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