STPI Software Exports From Tier 2-3 Cities Soar

Software exports from the Software Technology Park of India or STPI centres in Tier 2 and Tier 3 cities have soared in the past five years, as more companies establish and expand operations to the hinterlands of India. 

The IT landscape in India has been traditionally concentrated in Tier 1 cities like Bengaluru, Hyderabad and Chennai. However, a penetration towards the smaller cities have been seen, albeit at a slower pace, as industry and government make efforts to ramp up infrastructure and introduce skilling initiatives. 

“The Software Technology Park (STP) is the one of the most important schemes in this effort. Under this scheme, Software Technology Parks have been established in 65 cities across India with 57 centres in Tier-2 and Tier-3 cities like Kakinada, Tirupati, Vijayawada and others," Union Minister for Electronics and IT, Ashwini Vaishnaw recently said, while replying to a query raised by a lawmaker.

Data shows Tier 2 and 3 cities have seen software export value rise significantly in the last five years. For instance, from 2019-2020 to 2023-24, Coimbatore’s export value shot up 265%, exports from Gandhinagar rose 144%, Indore’s exports shot up 153%, and Jaipur’s exports value hiked 169%.

The STP centres provide incubator facility which help entrepreneurs to convert their innovative ideas into startups. The incubator facility provides opportunity of meeting with investors, including venture capitalists, mentors from Indian Institute of Technology, and networking opportunity with IT professionals, Vaishnaw noted in his reply. 

Triveni N D, Scientist F at STPI, explains, “As Bengaluru becomes crowded, more companies are looking to move to Tier 2 and Tier 3 cities. These cities now have good colleges and courses that prepare students with the skills companies need. This makes it easier for businesses to find talented employees. For STPI, we have focused on growing in smaller cities, as most of our centres are located there, helping businesses and local economies grow.”

The STPI, along with Electronics and Software Technology Parks or ESTP schemes make smaller cities increasingly attractive for investment. STPI centres provide single-window clearance, along with infrastructure and ecosystem, making it easier for businesses to set up operations, Triveni said.

In addition, the organisation actively reaches out to companies, creating awareness and encouraging them to establish a presence in these towns. Initiatives like Centres of Excellence and Centres of Entrepreneurship for startups help in making smaller cities better emerging hubs, she added.

Even as contribution from smaller cities grows, the lion's share of software exports is still from Tier 1 cities such as Bengaluru, Chennai, Hyderabad, Mumbai and Pune. Even on a higher base, Bengaluru, the highest contributor, saw its export value jump 111%,  Chennai’s exports rose 68%, and Hyderabad saw a jump of 88%. 

Commenting on the growth of IT sector in the Tier 2 and Tier 3 cities, Mohandas Pai, ex-chief financial officer of of Infosys Ltd. and chairman of Aarin Capital said, “Even though there has been some shift toward growth in smaller cities, significant progress is still lacking. The government needs to invest more in building infrastructure and creating an ecosystem that encourages businesses to set up shop, much like the state government did for Hyderabad. Cities like Mysuru and Mangalore in Karnataka present an even larger potential for growth, yet they are still not fully tapped into.”

Moreover, the government should make a greater effort to support and incentivise smaller companies to establish operations in these regions. While industries have made some attempts to expand to Tier 2 and Tier 3 cities, their progress has been slow, hindering the broader economic development of these areas, Pai added. 

In recent years, the IT sector has made concerted efforts to expand into Tier 2 and Tier 3 cities, a trend that gained momentum following the pandemic. However, despite these efforts, tangible progress has been limited. A notable example is Infosys, which established a development center in Karnataka's Hubballi, with hopes of creating more job opportunities and fostering local growth. Yet, the company has frequently faced questions about the pace of job creation and the overall success of its initiatives in the city.