Leading States and cities

Indian cities can be divided into clusters according to the House Rent Allowance, which was set out by the Fifth Pay Commission of India in 1997. This grouping classifies cities into “Tiers”. Cities that are most populous and economically advanced are rated Tier I, followed by emerging cities in Tiers II and III. The distribution of FDI provides one indication of the distribution of GDP and growth prospects within a state. Businesses often set up operations in locations that facilitate communications with local and regional partners and suppliers. The top investor-friendly states and cities have been shown in the graphs below:

Tier II cities: Attractive Destination

Although Tier I cities will continue to be attractive, they are especially so to first-time investors in India seeking to minimize risk. As operations in Tier I cities become more costly due to higher land and labor costs, investors are more likely to relocate some of their operations to Tier II cities, where labor — although often less educated — is more abundant and land prices are lower. Overall, since 2003, the concentration of FDI projects in the top five cities has fallen by 40%. This demonstrates the increasing attractiveness of smaller state capitals and Tier II cities. Among the Tier II cities, manufacturing activities are most prevalent, followed by IT.

Tier II cities and Sector Advantages