De-urbanization: Why Major Accounting Firms Are Ditching India’s Metropolises?
Ira Singh
17July’23
In a surprising turn of events, major accounting firms operating in India have been abandoning the country’s bustling metropolises in favor of smaller cities and towns. This reversal of urbanization trends has raised eyebrows and sparked discussions about the changing dynamics of India’s business landscape.
For decades, India’s metropolitan areas, such as Mumbai, Delhi, Bangalore, and Chennai, have served as the epicenters of economic growth and opportunity. These cities attracted a large pool of talent, including accountants, due to their robust infrastructure, access to international markets, and availability of skilled professionals. However, recent developments have prompted accounting firms to reassess their strategies and look beyond the traditional urban hubs.
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.
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,as per media reports.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.
India’s industrialization and urbanization grew together in the early 1990s, but have dispersed in the last decade, according to reports.Conventional wisdom suggests that industrialization and urbanization go hand in hand. Policymakers often adopt an active “industrial policy” to accelerate growth. They also embrace an active “urban policy”, since industrialization without urbanization gets stalled. This has changed.
Manufacturing growth was initially concentrated around the mega cities. But it has dispersed in the last decade. The share of the manufacturing sector in employment, output, and number of enterprises has declined in urban areas, according to sources.This de-urbanization of the manufacturing sector has been much steeper in the organized sector compared to the unorganized sector. Large-scale manufacturing enterprises, that account for 80% of output, are moving into rural areas in search of lower land costs to remain competitive. However, the unorganized manufacturing sector, that creates the majority of jobs, is still concentrating in cities, in search of better physical infrastructure.
The trend of major accounting firms investing in smaller Indian cities signifies a significant shift in the country’s business landscape.India’s de-urbanization of the manufacturing sector raises potential concerns. Will the manufacturing sector moving away from cities compromise economic growth and job creation? Will low levels of infrastructure investments in rural areas slow down the pace of spatial transformation? Is there a need for a better integration of the rural-urban development agenda, as India proceeds with the next phase of urbanization?