Since the 2010s, the overcrowding, pollution, and higher cost of living in the tier I cities have compelled the retiring people to move to these cities that offer better prospects to live. At the same time, with an increase in public investment and enhanced internet service availability,tier 2 cities have turned into lucrative spots with higher consumption enabling more people to stay back and even return from metro cities.
Growth of Tier 2 cities and rise of Middle Class
1. The Digital India and Startup India campaigns, the JAM trinity and Smart Cities Mission have accelerated the urban transformation of Tier 2 and 3 cities in India.
2. With ample savings and low-interest rates over the last few years, the middle class families are making the best of the opportunity and have started investing in homes in tier 2 cities at a very early stage of their professional life. 3. This is possible because of the cheap credit availability in these areas.
4. The cost of living in these cities are about 60% of the Metropolitan cities and hence are very attractive to Middle class families.
5. Moreover, the ‘work from home’ model amid the COVID-19 pandemic has set off a trend of reverse migration. These workers are mostly from the middle class.
6. Leading multinational firms are embracing the idea of expansion in Tier 2 and Tier 3 cities due to multiple advantages of cost-effectiveness, lower land and labour costs, availability of the talent pool, and low attrition rate of the workforce.
7. The Ministry of Commerce and Industry had said recently that nearly 50% of the recognised startups in India were now from tier 2 and 3 cities. These startups had created more than seven lakh jobs.
8. Making a huge leap post-pandemic, these cities that already had a number of benefits to show, such as lower pricing, a greater variety of options, and improved infrastructure, are now promoting their proximity to urban regions, making them an attractive option for commuters who are from the middle class.
Tier 2 cities and the culture of consumption
1. The Indian government has taken several measures to foster the growth and culture of consumption in these cities. The construction of new airports, highways, and industrial or commercial properties in tier 2 and tier 3 cities is one such endeavour. These airports are intended to increase tourism and commerce, as well as connectivity between various regions of the country.
2. The upcoming large-scale developments such as Delhi-Mumbai Industrial Corridor (DMIC), Metro Neo and Metro Lite will bolster connectivity and put Tier 2 and Tier 3 cities such as Sonipat, Jaipur, Dehradun, etc. on the infrastructure map.
3. Moreover, the cost of materials and labour is lower in these cities, making them an attractive option for business owners.
4. Even in tier- II cities, the opening of malls and multiplexes, pubs, and fast food joints have exposed the younger population to these big-city charms. Starting from the delivery services by most e-commerce players and cab-hailing apps have also targeted their services to these smaller cities, which were only enjoyed so far by big-city residents.
This gradual boom in consumption led by these cities in all verticals makes them the country’s actual growth engines. A combination of the rising middle class, a shift in consumption patterns and technological innovation augur well for Tier 2 and Tier 3 cities to emerge as growth engines of the Indian economy.