India’s rise as ‘world’s back office’ in spotlight as service sector booms

As China specialised in being the world’s factory, India has spent the past 30 years attracting multinationals to set up ‘global capability centres’

These GCCs now account for more than 1 per cent of India’s GDP and generate more combined revenue than the entire economy of Nepal

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Workers are seen at the Siemens Healthineers AG global capability centre in Bangalore earlier this year. Across India, the offices set up by multinationals to provide cheap operational support are now taking on more sophisticated roles. Photo: Bloomberg

Published: 1:01pm, 14 Jun 2023Updated: 3:14pm, 14 Jun 2023

On the eastern side of Bangalore, the city that’s sometimes called the Silicon Valley of India and is officially known as Bengaluru, sits a campus housing three cube-like glass buildings. Each is 10 storeys high, with facades glistening in the strong South Asian sun.

These are the offices of Goldman Sachs Group Inc., home to about 8,000 workers, the bank’s largest venue outside New York. When Goldman set up in the city in 2004, it had roughly 300 people mainly providing IT and other support. Now, its workers are quantitative analysts and software engineers, building systems for everything from making trades to managing risk.

Across India, the offices set up by multinationals to provide cheap operational support are taking on more sophisticated roles. While the shift has been under way for years, recent economic data highlight a rapid service-sector expansion that many attribute to the offices known as global capability centres.

These GCCs now account for more than 1 per cent of India’s gross domestic product. But the boom also creates challenges, both for the companies and the cities that host them. Finding qualified employees is becoming more difficult, pushing salaries up, while offshoring may become politically sensitive again in the US presidential race.

A GCC worker in Bangalore. India has roughly 1,600 of the centres, more than 40 per cent of the number worldwide. Photo: Bloomberg

“Over the last 30 years, while China specialised in becoming the world’s factory, India specialised in becoming the world’s back office,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “Over the years, India moved up the value chain,” he said. But it can’t “take its comparative advantage for granted.”

India has roughly 1,600 of the centres, more than 40 per cent of the number worldwide, according to Nasscom, a trade body for the country’s technology industry. Dotted around Bangalore are the offices of luxury retailer Saks Fifth Avenue Inc., aircraft-engine maker Rolls-Royce Holdings Plc, US bank Wells Fargo & Co. and Japanese e-commerce firm Rakuten Group Inc. Some 66 global companies set up their first GCC in India last year. Even the lingerie brand Victoria’s Secret & Co. has a Bangalore GCC.