Urbanisation reversed: Why major accounting firms are ditching India's metropolises

Major accounting firms are increasing their investments in new facilities in smaller Indian cities as the demand for cheaper back-office operations rises, and these towns move up the economic value chain. Traditionally, multinational corporations have established operational centers in India's largest metropolises, such as Mumbai, Delhi, and Bengaluru, due to the availability of a large, low-cost talent pool, especially in the field of information technology. However, the sector has experienced a slowdown in global demand for software and encountered challenges in big urban centers, including rising costs, high attrition rates, and difficulties in getting workers back to the office after the pandemic.

According to a report by Ernst & Young cited by Reuters, multinationals are now expected to establish 'global capability centers' in tier-2 cities like Jaipur, Vadodara, Kochi, and Chandigarh. By 2030, the number of such centers is projected to reach 2,400, creating 2.6 million jobs and contributing over $100 billion to the Indian economy. This shift means professionals can expect more opportunities and potentially higher salaries in these smaller cities. Factors such as rising wages, declining accounting graduates in developed countries due to the pandemic, and visa restrictions have positioned India as a global hub for business services, including taxation, data analytics, cybersecurity, and customer management. India has doubled its share in global services trade to over 4 per cent from 2 per cent in 2005, making it one of the world's leading exporters of services, as the World Trade Organization estimated.

Smaller cities and their untapped potential

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Large accounting firms are seizing the opportunity to tap into the talent pool and competitive advantages offered by these smaller Indian cities. Deloitte, which already employs over 100,000 people in India, plans to hire an additional 50,000 staff members within the next three years and expand its presence in new locations. Similarly, KPMG aims to hire over 20,000 employees over the same period. PwC hired approximately 12,500 professionals in the last fiscal year and expects to hire a similar number this year. The move by these accounting giants is expected to provide relief to the labor market, which has experienced slower hiring in the manufacturing and IT sectors due to global growth concerns.

Prime Minister Narendra Modi has set a target of $400 billion for service exports in the current fiscal year, representing a 25 per cent increase from the previous year. Sunil Talati, president of the government-aided Services Export Promotion Council, believes that total services exports could surpass goods exports within the next five years, reaching $750 billion. Cities like Bhubaneswar in the eastern state of Odisha have witnessed the opening of offices by Deloitte, PwC, and IBM to cater to Indian and global clients.

The establishment of these new offices in smaller cities has not only provided employment opportunities but also stimulated other sectors. Educational institutions have introduced new courses to meet the demand, while property developers have launched building projects. Additionally, the demand for office space in smaller cities has surged, resulting in a rent increase of up to 10 per cent, as reported by Knight Frank consultancy.

Multinational and domestic accounting firms follow suit by moving their operations to smaller towns and increasing wages to retain skilled employees. Shortages of certified accounting professionals have been observed, prompting firms to adapt to the changing landscape and open offices in these emerging cities.

The trend of major accounting firms investing in smaller Indian cities signifies a significant shift in the country's business landscape. These cities are now being recognized for their potential in offering cost-effective solutions and a talented workforce, attracting global players and driving economic growth in previously untapped regions.

(With Inputs from Reuters)