Written By Puja Bhardwaj
India’s startup ecosystem is transforming rapidly, with the focus shifting to the smaller cities that promise exciting growth opportunities for startups and investors alike. For years, metropolitan cities like Bengaluru, Delhi NCR, and Mumbai have revolutionised India’s startup story. But for the last year, innovation has not been limited to these hubs.
For instance, Flipkart launched “Flipkart Assured”; its biggest market was Bengaluru in 2016. Presently, Flipkart’s biggest market is Nagpur.
As reported, around 375 million Indians dwell in urban areas apart from the major metros. In recent years, tier 2 and 3 cities have emerged as major economic centres with increasing earnings, rapid urbanisation, and digital access.
Across Tier 2 and Tier 3 cities, many new ventures are getting shaped, new consumers are emerging online, and a new generation of founders is introducing new business ventures specifically for markets once considered too small to scale.
Major Trends Fueling the Shift
Digital reach: As per the latest data, India presently holds over 870 million internet users. Half of the new users are from non-metro and smaller towns. The affordable smartphones and data have boosted this digital adoption beyond large cities. The number of Internet users in these cities has increased by around 30% annually till 2025. This shows the global trend of focused wealth and innovation hubs giving way to a distributed model as costs become prohibitive.
Lower Cost: The best part about these cities is that they work as fertile ground for startups and capital to thrive with lower costs and competitive advantages over industry leaders. Another advantage is its cheaper real estate and talent that enable growing startups to have higher capital efficiency at their early-stage ventures. Because of the lower costs, startups are able to deliver more value to customers at affordable prices and gain higher margins.
Lifestyle Changes: Urbanising towns drive consumption across categories like food, lifestyle, entertainment, and banking due to the influx of migrant talent aiming for better standards of living and higher income levels. Rising connectivity and mobile internet penetration are opening up these consumers to a plethora of digital businesses. The expanding middle class in rising urban centres is an underserved market ripe for disruption.
Localised Approach: Large MNCs and metro city-focused companies find it tough to crack these markets because their centralised models lack localisation, especially for these smaller cities. It leaves big white spaces for small startups to gain share through contextual solutions.
Instant Payment: In today’s daily life, digital payments have become essential. Presently, 65% of UPI transactions are now originated from non-metro regions.
Cultural Empowerment: There was a time when regional consumers were considered tough to convince, engage and process. Today, they are digitally fluent and aspirational.
Government Initiatives: The government further accelerates this growth through policy support and funding mechanisms at different stages of the startup lifecycle. Some of the major flagship schemes started by the government include the Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Startups (CGSS), offering financial support at different stages of the startup lifecycle.
Remote work: The pandemic has increased the focus on remote work and proved that dedicated teams can work from anywhere. This shift has also made regional cities great hubs for growing startups without the pressure of relocating to metros.
Infrastructure upgrades: Recently, the co-working spaces have improved a lot with high-speed internet, digital public infrastructure, and last-mile logistics, which have effectively removed the operational gap between metros and non-metros. Hence, business owners can easily get the tools and platforms needed to operate modern businesses from smaller cities.
Diversification in Investors: Today, investors want to go beyond metros to unleash the potential in underserved markets. Investors are taking an interest in regional startups because of their deeper local insights and less crowded competitive landscapes.
Startups Going beyond Traditional Hubs
Startups are spreading beyond a few metro cities, as reported by the government ministry; they are now present across all states and Union Territories. Still, major hubs like Maharashtra, Karnataka, Uttar Pradesh, Delhi, and Gujarat are in a leading position in terms of startup numbers and job opportunities. It reflects the robust infrastructure and investment ecosystems of these states.
Besides, public procurement platforms such as the Government e-Marketplace (GeM) are offering new platforms to the emerging startups in smaller cities. More than 38,600 startups have been onboarded on this innovative platform, and there is also a steady rise in orders and transaction value.
Significance of this Shift: India’s Future
First of all, the rise of entrepreneurship beyond metro cities decentralises the opportunities. It effectively reduces migration pressure on the cities, empowers local economies, and generates jobs for people living there. More importantly, this new shift proves that innovation is not limited to any specific geography; it is possible with the right insight, commitment, and patience.
