Global Capability Centres: The New Drivers Of India’s Commercial Real Estate

1. Introduction to Indian Real Estate Market and GCCs

The growth story of India since the last decade has established the country as a premier destination for global investments and business operations. According to the World Bank, India ranks 3rd (third) globally in terms of GDP by Purchasing Power Parity. This growth has been propelled by introduction of sector-specific initiatives and governance models. While many advanced economies grapple with sluggish economic growth, rising inflation, and an ageing workforce, India on the other hand is widely recognised as one of the fastest-growing economies by organisations such as the International Monetary Fund. Contextually, India has made significant improvements in public life resulting in growing middle class, a skilled workforce and an expanding consumer market. India’s real estate sector is a major contributor to GDP, and second-largest employment generator, projected to reach a market size of US$ 1 trillion by 2030, up from US$ 200 billion in 2021. The sub-sectors in the real estate realm namely, housing/residential, commercial, retail, hospitality, logistics have all shown upright growth matched with increasing demand. The commercial real estate space in India is well-organised to cater to rising demand complemented by booming economy, digitalisation, inbound investments and policy reforms by the Union Government and State Governments.

Global capability centres or global in-house centres (“GCC” or “GIC”) are strategic centres for multinational companies (“MNCs”) driving business transformation globally through momentous contributions in research and development, innovation, artificial intelligence, information technology services (IT), intellectual property, data and analytics, business management processes among others. In India, these centres have adapted to global trends and transmuted from a simple back-office to a multi-specialised and multi-functional integrated hub to aid the growth of MNCs. The growing commercial real estate space accompanied with a favourable policy framework, skilled workforce, civil infrastructure, etc. has positioned India as a ‘destination of choice’ for MNCs to establish GCC. India presently hosts over ~1700 GCCs, operating across different sectors such as banking, financial services, insurance, healthcare, life sciences, consulting, engineering, IT/ITES, etc. The GCC market size in India is projected to reach USD$ 100 billion by the year 2030, offering employment to over 2.5 million people. In light of the above, it is crucial to understand the trends playing in the Indian real estate market and related factors such as locations, acquisition models, regulatory framework, and documentation to understand the contours of establishing and operating GCCs in India.

2. GCC Trends

2.1. The Union Government and State Governments have been at the forefront in adopting the right measures at right time to meet the growing demands of businesses such as developed infrastructure, skilled workforce, implementation of business-friendly policy framework, and dedicated nodal agencies and authorities. The GCCs in India have: (a) embraced advancement and adoption of new technologies like artificial intelligence, cloud computing, task automation, machine learning and internet of things; (b) led innovations by introducing incubators and skill learning courses for workforce upgradation and development; (c) collaborated and partnered with government agencies and bodies, universities and other organisation promoting synergies; (d) prepared sustainable, efficient and cost effective practices in business operations; and (e) established themselves in tier-II and tier-III cities across the country in line with geographical development, availability of skilled resources and creation of metropolitans.

2.2. Most of the key commercial and financial centres in India over the time have become major hubs for establishing and operating GCCs in India. The major GCC hubs in India are as follows:

  1. Mumbai being a financial capital of the nation has attracted over 350 MNCs to set up their GCCs in areas like Bandra-Kurla Complex, Lower Parel, Goregaon, etc. Mumbai offers one stop solution to wide array of professionals, network of MNCs, office complexes in addition to policy and regulatory framework support;
  2. Gurugram and Noida as part of the National Capital Region have seen significant growth in the number of GCCs in recent times. With business-friendly policies such as ‘Invest UP’ and diversified incentives along with proximity to government offices, international airports and large talent pool, Gurugram and Noida have emerged as optimum centres in the Northern India. The Delhi-National Capital Region collectively hosts over 450 GCCs in India;
  3. Hyderabad due to establishment of dedicated IT Parks such as HITEC City (Hyderabad Information Technology and Engineering Consultancy City) and availability of sector specific policies has gradually become one of the preferred option to set-up GCCs in India. Presently, more than 200 GCCs are located in Hyderabad with a vision to attract many more in the coming years, with a consistent focus on this sector by the State Government;
  4. Bengaluru, also known as ‘Silicon Valley of India’ and a focal point of IT development, is at the forefront of leading the GCC space in the nation. Bengaluru offers IT Parks, SEZs, commercial office spaces, residential complexes and large pool of skilled workforce. The State of Karnataka presently hosts over 500 GCCs, with majority of them in Bengaluru have already been established in the State with the vision of locating another 500 GCCs by the year 2029.

In recent past, MNCs like Microsoft, Amazon, Google, Facebook, Bank of America, Goldman Sachs, JP Morgan Chase, Deloitte, HSBC, Walmart, Shell, Citi Global, Bosch Global, Adobe, Fujitsu, HP, VISA, Accenture, Capgemini, IBM, Ericsson, Agoda, SAP, Novartis, Philips, AstraZeneca, UnitedHealth Group, Sanofi, 3M, Daichi Sankyo, American Express, Barclays, Wells Fargo, Siemens, Uber, DHL among others have established their GCCs or GICs in India.

3. GCCs and strategic considerations

3.1. Overview of incentives: The feasibility and success of GCCs in the long term is significantly affected by the policies, incentives and taxation norms introduced by the concerned State Government in which the GCC property is located. Therefore, MNCs need to comparatively analyse the policies and incentives provided by different State Governments while selecting the GCC property. Some of the options are set out below:

  1. Under specific policy framework: MNCs have option to establish GCC under, sector specific policy framework introduced by the Union Government and concerned State Governments and/ or in regulated economic zones such as:
    1. Integrated Township Projects (“ITPs”): ITPs are self-sustained projects developed to cater to various real estate avenues such as institutional, industrial, commercial, and residential. These ITPs provide business-friendly ecosystem by providing regulatory exemptions, dedicated approval mechanism, monetary concessions, facilitating ease of doing business, etc. basis the proposals and applicable guidelines. These ITPs are governed by regulations formulated by regional authorities and planning boards constituted under special laws enacted by concerned State Governments, for instance USPIDA1 and NOIDA in the State of Uttar Pradesh and HSVP2 and HSIIDC3 in the State of Haryana;
    2. Special Economic Zones (“SEZs”): MNCs can explore establishing GCCs in SEZ and/ or register as a unit with Software Technology Park of India, to avail certain indirect tax benefits and concessions on levies which are otherwise applicable on the business operations in domestic trade area.
    3. Gujarat International Finance Tec-City (“GIFT City”): GIFT City is India’s first international financial service centres established with a vision to act as a leading financial centre across the globe. The GIFT City offers one-stop regulatory governance and tax benefits to the MNCs looking for a global-level corporate jurisdiction in India. The establishment of GICs in the GIFT City is regulated by International Financial Services Authority (Global In-House Centres) Regulations, 2020.
  2. State specific policies: The growing trend of establishing and operating GCCs in India is largely because of the proactive regulatory and policy framework provided by the Union and State Governments. The broad incentives and GCC focussed policies and guidelines issued by some of the State Governments are as follows:
    1. Incentives: Under the GCC focused policies, eligible MNCs can avail benefits and incentives such as cost of acquisition of property at discounted rate, reimbursement or exemption on applicable stamp duty, subsidies on capital invested, and applicable interest, subsidy on payroll related costs, reimbursements of rentals and refund of contributions to employment provident fund, assistance for skill upgradation and development of workforce among others.
    2. State Governments: While states such as Karnataka and Andhra Pradesh have introduced their respective GCC policies, states like Uttar Pradesh, Madhya Pradesh and Gujarat have also prepared their dedicated GCC policies and are in process of notifying the same. Further, states such as Maharashtra, Telangana, Tamil Nadu, Haryana, Rajasthan, Delhi and West Bengal have policies and schemes on industries, investments, IT/ITES and communication technology, etc. through which they extend incentives and benefits to eligible GCCs as well. It is likely that in near future more states will come up with their own GCC centred policies, under the umbrella framework proposed to be introduced by Ministry of Electronics and Information Technology (MeitY), to offer various fiscal incentives and benefits to become an attractive destination for GCCs.

Mode of establishing the GCC:

3.2. The landscape of the Indian real estate sector is regulated by various laws and governmental authorities, at the Union, State and municipal levels. Therefore, understanding these laws is fundamental for strategizing the establishment of a GCC in India. The key aspects to consider while choosing a location for setting up a GCC are cost of acquisition, marketability of the rights in property, feasibility of proposed project, and available infrastructure.

3.3. The subject of land administration, records and its management falls in the domain of the respective State Governments4. A MNC planning to establish a GCC in India may structure its existence in India from various corporate arrangements such as joint venture company, wholly owned subsidiary, limited liability partnership, partnership firm, and branch office. Thereafter, a MNC may acquire the property in India for the purposes of establishing a GCC in the following ways:

  1. Sale: Acquisition by way of a sale-purchase transaction for ownership in property is the most common form of property ownership in India, where the buyer has complete legal ownership rights over the property. While this mode of acquisition may be a more capital-intensive and time-consuming process, the advantage of this mode is asset creation and long-term use.
  2. Lease: A lease constitutes a right to enjoy the property for a pre-determined period of time (or perpetually, in case a perpetual lease deed), but the owner continues to own the property. The acquisition of the right in a property by way of a lease is not absolute, unlike in case of acquisition by sale. Lease as a mode of establishing a GCC is widely popular among businesses looking for long-term operations with comparatively lower capital investment, as against a sale purchase mode of acquisition.
  3. Leave And License: A license is a personal right or permission provided by the owner of the property to do something and does not confer any transfer of ‘interest’ in the property. A leave and license agreement is typically considered, basis the location of a property (such as Mumbai) where such agreements are widely used, and in cases where the occupancy is envisaged for a shorter period of time.
  4. Government Allotment: In identified areas in States, a governmental authority sells or leases land by allotment in favour of various developers/ entities, for such land to be utilised for a specific purpose, based on certain criteria which need to be fulfilled by the allottee entity. For example: NOIDA5 in the State of Uttar Pradesh or DDA6 in Delhi, are authorised to acquire land for allotment of land for the purposes of establishment and development of industrial, institutional, residential and commercial zones. These leases under such allotments are generally long-term leases ranging from 30 (thirty) years to 99 (ninety-nine) years, which may be renewed based on the policy of the government authority and terms of the lease deed. This mode is opted for where the GCC is sought to be established within the area/ project falling under the jurisdiction of a governmental authority or department. Government allotments may be considered where the property/ land comes with certain incentives and infrastructural support. However, the restrictions on such allotments should also be considered.
  5. Service arrangement: GCC-as-a-service (“GAAS”) model is comparatively newer and innovative mode of establishing and operating GCCs in India. Under the GAAS model, service providers set-up GCCs and render a comprehensive bundle of turnkey solutions which include talent acquisition, office management, IT infrastructure and support, compliances among others. This model is cost-effective for the MNCs and helps them save time and resources, and focus more on their business offerings. However, the MNC remains reliant and dependent on the service providers for different aspects of operating a GCC.

Documentation for the acquisition:

3.4. Nature of documentation: Pursuant to closing on the preferred model of establishing and operating a GCC in India basis the business requirements, transaction document(s) need to be drafted, negotiated and finalised. In any documentation for setting up of a GCC, certain aspects should be considered, such as (a) timelines for grant of rights; (b) clear identification of rights granted and restrictions (if any) on use and transfer, and (c) modalities of payment obligation. The criticality of these aspects will vary based on the selected mode of acquisition for establishing and operating a GCC.

3.5. Stamping and registration of documents: At the time of discussion and finalisation of the transaction document for a GCC property, registration and stamping requirements should be examined and fulfilled. Typically, registration and stamping of transaction documents are governed by the laws set out below:

  1. Registration under the Registration Act, 1908 (“Registration Act”): Registration is a requirement for certain documents to be lodged as a public document with a Government department. The Registration Act provides for compulsory registration of certain documents which include sale of immovable property above INR 100 (Indian Rupees One Hundred), leases of, and more than 12 (twelve) months, and in some States, leave and license agreements, along with payment of prescribed registration fee.
  2. Stamping of documents: Stamping is a requirement of payment of a duty on the documents executed to a State department based on its nature. Stamping is done on payment of prescribed stamp duty to a state authority in respect of a document, which may be computed based on a prescribed fixed rate or a prescribed percentage of the value of the property or consideration paid, depending on the location of the property and nature of the agreement to be stamped.

4. Take aways

The Indian ecosystem, including benefits pertaining to infrastructure, connectivity, policies, incentives, skilled workforce, dedicated framework and nodal agencies have helped various metropolitans to emerge as a major GCC hub, driving innovations, investments, employment generation and economic activity. The current GCC ecosystem in India still provides for scope to enhance certain aspects such as availability of specialised and skilled workforce, advancement and adoption of world-first technologies, cooperation and coordination across different levels of government and optimisation of alternative dispute redressal mechanism.

With continued improvements, supported by the government initiatives in infrastructural support, policy simplification, incentivisation and benefits, innovations and cooperation, India is set to drive the next wave of GCCs across the world. While the Indian ecosystem provides for the essentials of making the GCCs a resounding success and attract more investments, it is imperative to keep the competitive advantage and thrust to compete against other geographies across the world. It will be a remarkable proposition to watch the growth phase of GCCs in India to unfurl into an evolved ecosystem and position itself as the beacon of leadership in this sector for the whole world.

Footnote(s):

1 Uttar Pradesh State Industrial Development Authority.

2 Haryana Shehri Vikas Pradhikaran erstwhile known as Haryana Urban Development Authority.

3 Haryana State Industrial & Infrastructure Development Corporation.

4 The Constitution of India defines India as a ‘Union of State’, which comprises of various States and Union Territories. The Indian Constitutions provides for division of powers and rights between the Union and State Governments on different subject matters, however it also ensures that there remains co-operation and co-ordination between different governments under a single framework.

5 New Okhla Industrial Development Authority.

6 Delhi Development Authority.