Budget Measures Aim to Boost Foreign Investment in Global Capability Centres
India’s government is taking steps to streamline international taxation and create a more favourable environment for foreign businesses operating in the country. A significant part of the recent budget proposals targets the country’s growing sector of Global Capability Centres (GCCs), which are poised to become a cornerstone of the nation’s economic future. The GCC sector, responsible for providing high-value technology and business services, is projected to exceed $100 billion in revenues by 2030.
One of the most notable measures announced in the budget is the adoption of a three-year block-period approach for arm’s length tax pricing under transfer pricing regulations. This new approach is designed to provide foreign companies with greater regulatory certainty and a reduction in tax-related disputes, a long-standing issue for multinational corporations with technology captive centres in India. Experts have long called for such reforms, as ongoing litigation over tax rates has been a burden for global businesses operating in the country. Rajesh Nambiar, President of Nasscom, India’s tech industry body, hailed the announcement, stating, “This measure is about ease of doing business. There is an enormous amount of time spent going back and forth on taxation to arrive at a rate. Now, with this arrangement, there is a little bit of certainty for at least three years.” The new system will allow companies to settle on a transfer pricing rate within the first year, which will remain valid for the subsequent two years. This adjustment is expected to alleviate concerns over potential disputes and tax unpredictability, offering much-needed stability for multinational firms considering long-term investments in India.
The government is also working to expand safe harbour rules for GCCs, which will help to further reduce the compliance burden on foreign companies. These safe harbour rules provide a simplified framework for companies to comply with transfer pricing regulations, ensuring that foreign firms are not overburdened by complex compliance requirements. In addition to tax reforms, the budget proposes to formulate a national framework to promote GCCs, with an emphasis on expanding these centres to emerging Tier-II cities. The government is keen to decentralise the growth of GCCs, which have historically been concentrated in metropolitan areas such as Bengaluru, Hyderabad, and Pune. By offering incentives for foreign companies to set up operations in smaller cities, the government hopes to spread the benefits of economic growth across a wider geographical area.
Ramkumar Ramamoorthy, Partner at Catalincs and former Chairman of Cognizant India, highlighted the importance of GCCs, stating that they are at the “forefront of creating high-quality, high-value jobs in India, especially in next-generation technology areas.” For foreign companies, the budget proposals provide a welcome sense of stability and predictability, which could encourage greater investment in India’s GCC sector. As global corporations increasingly rely on India for high-end technology development, this sector’s expansion is expected to drive significant job creation and technological innovation. The promise of easier regulations and a more transparent tax system could prompt many firms to either expand existing operations or establish new centres in India.
However, there is also cautious optimism from industry leaders, as the full impact of these reforms will depend on how they are implemented in practice. While the regulatory changes are promising, there is a sense that companies will need time to adjust to the new structure and assess the long-term effects on their operations. As the budget measures take shape, the GCC sector in India is set to experience a transformation that could position the country as an even more attractive destination for global businesses. The projected growth of the sector to $100 billion by 2030 is an ambitious target, but with the government’s focus on improving business conditions, there is optimism that India will become a key player in the global economy.
