By Sai Ishwarbharath B and Haripriya Suresh

MADURAI/BENGALURU, April 25 (Reuters) - Indian engineer

B. Ramachandran now prefers living in the smaller cities than

the major tech hubs of Bengaluru and Chennai.

After the pandemic, the 47-year-old moved to Madurai, a

temple town in the southern state of Tamil Nadu. He has no plans

to leave his hometown, saying the chance to live with his ageing

mother while working for New York-based technology services firm

Genpact ( G ) is a "blessing".

IT companies are now expanding into smaller cities, in part

to tap on workers like Ramachandran, and to capitalise on

cheaper land costs, rents and wages.

Some are already finding it easier to hire staff in tier 2

cities, in contrast to before the pandemic when workers largely

went from smaller cities into the country's major IT hubs for

jobs.

"The HR and I used to drive down to Bengaluru and Chennai to

interview experienced talent and convince them to move to

Madurai," said Selvaganesh M.P, founder of IT firm SMI that was

bought by mid-cap IT company Happiest Minds in 2023.

"This is no longer needed as the equation has changed after

COVID-19."

U.S.-based Cognizant and India's Tata Consultancy

Services, Infosys, HCLTech and

Wipro, are moving into smaller cities due to cost

efficiency, government incentives and availability of talent.

HCLTech has two offices in Madurai with 6,700 employees.

It had originally aimed for 5,000 staff by 2025, which it

exceeded, as a result of pandemic-induced demand. It also

expanded its workforce in tier 2 locations such as Nagpur in

Maharashtra state, Vijayawada in southern Andhra Pradesh state

and Lucknow in the northern state of Uttar Pradesh since the

pandemic.

Industry watchers say the trend to smaller cities helps

companies reduce attrition and cut costs at a time when the $254

billion Indian IT sector is grappling with weak sales growth

amid global economic uncertainty.

Employee salaries are 25%-30% lower and real estate rentals

are around 50% cheaper than in established tech hubs, according

to a report by Deloitte and industry body Nasscom.

BEYOND METROPOLITAN CITIES

Cognizant is trying to exit a major Chennai facility as part

of its plan to cut real estate costs by $100 million by 2025,

even as it opened an office in Bhubaneswar, in eastern Odisha

state.

Tech Mahindra is running an initiative called

"Nxt.Towns" to win talent in tier 2 cities, while Wipro is

encouraging employees to relocate to its offices in smaller

cities through "Project Lavender".

Wipro is offering employees twice the usual referral bonus

for directing people to vacancies in Kochi in southwestern

Kerala state, and Visakhapatnam city in Andhra Pradesh,

according to emails seen by Reuters. It declined comment

specifically on this development.

However, Wipro said it was making continuous investments in

tier 2 and tier 3 cities and had set up offices in multiple

emerging cities such as Ahmedabad, Bhubaneshwar and Guwahati to

tap into talent and scale operations.

Cognizant did not comment, citing a silent period ahead of

its quarterly results. Tata Consultancy and Infosys did not

respond to emails seeking comment.

The trend by firms to decentralise has hurt demand for

office space. The tech sector's share in India's top seven

markets fell to 20.9% in 2023, its lowest in more than a decade,

JLL data showed.

"The IT services sector has really struggled to get people

back in offices," said Anshul Jain, India and Southeast Asia

managing director at Cushman & Wakefield.

The change also comes as state governments offer stamp duty

concessions, land benefits, subsidised power and other

incentives to bring jobs to smaller cities.

And as jobs shift to these cities, so will consumption.

"What we're seeing is improving lifestyles in secondary

cities, whether it's retail, entertainment, F&B services," Jain

said, adding that tech hiring "certainly creates a spur in the

economy".

"So, the IT industry's multiplier effects that we've seen in

tier 1 could be seen in tier 2, if the experiment is

successful."