India’s manufacturing industry sprinting towards a USD 1 trillion valuation by 2025-26, Tier-2 cities such as Coimbatore, Indore, and Bhubaneswar are coming up as new industrial hubs, threatening the stranglehold of metros such as Mumbai and Chennai.
Driven by government initiatives, enhanced infrastructure, and reduced expenses, these cities are drawing worldwide and domestic companies, stimulating jobs and economic growth, according to industry specialists.
Tier-2 cities have some key advantages. Land and labor prices are 30-50% less compared to Tier-1 cities, according to a 2024 CII study. Textile and auto component cluster Coimbatore has more than 2,000 MSMEs, with companies like Pricol widening operations.
Indore’s Pithampur industrial cluster, referred to as “India’s Detroit,” attracts auto majors like Mahindra, aided by Madhya Pradesh’s business-friendly initiatives. Bhubaneswar, cashing in on the mineral resources of Odisha, registered a 20% growth in steel and chemical units in 2024, led by the investments by JSW.
The government intervention is the driving force. PM Gati Shakti Plan has enhanced connectivity, with highways and rail corridors connecting Tier-2 towns with ports. For example, the Amritsar-Kolkata Industrial Corridor enhances Ludhiana’s textile exports.
The USD 27 billion Production Linked Incentive (PLI) scheme encourages electronics and pharma companies to locate in cities such as Visakhapatnam, where Samsung announced a new facility. The Districts as Export Hubs initiative also encourages local products, allowing Rajkot’s engineering products to find export markets.
Infrastructure development is changing these cities. Smart city initiatives of Indore provide assured power and water, whereas the airport expansion of Coimbatore facilitates logistics. The National Infrastructure Pipeline of INR 11,110 billion invested during 2024-25 facilitates industrial parks in cities such as Jaipur, from where 15% of India’s leather export takes place. These facilitate the reduction in logistics costs, which still are high at 14% of GDP, thereby making Tier-2 cities viable.
Employment generation is a key benefit. Tier-2 cities have 40% of India’s manufacturing labor force, with Ludhiana contributing 50,000 jobs in 2024 alone, according to Invest India. Women are also finding opportunities, with 25% of Coimbatore’s textile labor force female, thanks to training initiatives from Skill India. Yet there are still challenges.
Only 30% of workers in the cities have formal training, hindering adoption of automation. Land acquisition setbacks and bureaucratic issues also hinder progress, experts caution.
All this aside, Tier-2 cities are transforming India’s industrial map. “Lower costs and government incentives make such cities like Bhubaneswar the preferred destination for manufacturing,” observed Priya Menon, a CII analyst.
With FDI inflows crossing USD 17.96 billion in FY 23-24, these cities are attracting companies diversifying from China. As India aims for USD 776.68 billion exports, Tier-2 cities are poised to take the lead.