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What’s Fueling the Growth in Smaller Cities?

Several powerful factors are combining to make Tier-2 and Tier-3 cities attractive for investment.

1. Government Initiatives Paving the Way

The government has launched several key programs to boost growth beyond the metros. These initiatives are creating a strong foundation for businesses to thrive.

• Smart Cities Mission: Launched in 2015, this mission aims to transform 100 non-metropolitan cities into sustainable and economically vibrant centers. By the end of 2024, thousands of projects worth over ₹1.47 lakh crore were completed, enhancing everything from public transport to digital infrastructure.
• UDAN Scheme: The Ude Desh ka Aam Naagrik (UDAN) scheme has been a game-changer for connectivity. By making regional air travel affordable, it has connected over 88 smaller cities, making business travel and logistics much easier.
• Digital India Initiative: This program has been instrumental in bridging the digital divide. With internet subscribers growing to nearly 1.2 billion by March 2024, businesses can now reach customers in any corner of the country. This has been a massive boon for e-commerce, with smaller cities now accounting for the largest volume of online orders.

2. The Power of Lower Operational Costs

One of the biggest advantages of moving to smaller cities is the cost. The expense of running a business in a Tier-1 city can be sky-high. In contrast, office rent, employee salaries, and general living costs are significantly lower in Tier-2 and Tier-3 cities.

For a startup or an expanding business, these savings are huge. Lower costs mean higher profit margins and the ability to scale more effectively. An entrepreneur can build a sustainable business without the immense financial pressure of a metro city.

3. A Booming Hub for MSMEs

Tier-2 and Tier-3 cities have become the backbone of India’s Micro, Small, and Medium Enterprises (MSMEs). In fact, these cities are home to 51% of the nation’s registered MSMEs. The combination of lower costs, growing consumer demand, and government support schemes like the Pradhan Mantri MUDRA Yojana (which provides collateral-free loans) makes them an ideal breeding ground for new businesses.

4. Untapped Talent and Better Quality of Life

These cities are home to a large and educated workforce. With many quality educational institutions located here, companies have access to skilled talent without the intense competition found in metros.

Furthermore, many people now prefer the healthier, more balanced lifestyle these cities offer. This makes it easier for companies to attract and retain employees who are looking for a better quality of life away from the hustle and bustle of Tier-1 cities.

Have you ever wondered where big international investors put their money? Lately, a lot of that money is flowing into India, but not just into the big, famous companies. A surprising amount is going into something you might use every day: small banks and Non-Banking Financial Companies (NBFCs).

So, what’s going on? Why are these global money managers so excited about India’s smaller financial players? This article will break it all down in simple terms. We’ll explore what NBFCs are, why they are becoming so popular, and what this means for you and the Indian economy.

What Are Small Banks and NBFCs?

Let’s start with the basics. We all know what a bank is. They take deposits, give loans, and offer many other financial services. Small banks are just that—smaller, often regional, banks that focus on specific communities or customer groups.

But what about NBFCs?

An NBFC, or a Non-Banking Financial Company, is a company that provides bank-like financial services but does not hold a banking license. Think of them as a cousin to traditional banks. They can give you a loan for a car, a house, or your business. They can help you invest your money. However, they can’t do certain things a bank can, like accept demand deposits (the money in your savings or current account that you can withdraw anytime).

Examples of NBFCs you might know:

• Bajaj Finserv (gives loans for electronics, personal loans)
• Muthoot Finance (gives loans against gold)
• HDB Financial Services (a subsidiary of HDFC Bank that offers various loans)

These companies play a huge role in making money accessible to people and small businesses who might not get loans from big, traditional banks.

The Big Picture: Why the Sudden Interest?

Global investors are always looking for the next big growth story, and right now, India is a very bright spot. The country’s economy is one of the fastest-growing in the world. As more people join the middle class and more small businesses pop up, the demand for money—or credit—is exploding.

Big banks are great, but they can’t reach everyone. This is where small banks and NBFCs step in. They are filling a massive gap in the market, and investors have taken notice.

Here are the key reasons why they are betting big on this sector.

1. Reaching the Unreached (Financial Inclusion)

India is a vast country. Many people, especially in smaller towns and rural areas, still don’t have access to formal banking services. Big banks often have strict rules and require a lot of paperwork, which can be a hurdle for small business owners or first-time borrowers.

NBFCs and small banks are more flexible.

• They have a simpler loan process.
• They often have a deep understanding of the local community.
• They are willing to give smaller loans, which big banks might ignore.

For example, a local farmer who needs a small loan for seeds might find it easier to get it from a local NBFC than from a large national bank. This process of bringing more people into the formal financial system is called financial inclusion, and it’s a massive growth opportunity.

2. The Digital Revolution

India’s digital boom has been a game-changer. Thanks to cheap data and widespread smartphone use, financial services can now be delivered through an app. This is where modern NBFCs, often called FinTechs, shine.

They use technology to:

• Assess risk better: Using digital data, they can quickly decide if someone is a good candidate for a loan.
• Disburse loans faster: Money can be in your account in minutes, not days.
• Reduce costs: With no need for a massive network of physical branches, they can operate more cheaply.

This tech-first approach allows them to scale up quickly and serve millions of new customers efficiently. Global investors love this kind of scalable, tech-driven business model.

3. A Strong and Supportive Economy

India’s economy is growing at a strong pace. Recent government numbers show GDP growth is projected to be around 7% for the 2024-25 financial year. A growing economy means:

• More people have jobs and higher incomes.
• More businesses are starting and expanding.
• People are more confident about spending and borrowing.

This creates a perfect environment for lenders. When people and businesses are doing well, they are more likely to pay back their loans on time, which means lower risk and higher profits for the financial institutions.

4. Regulatory Support and Stability

The Reserve Bank of India (RBI) has been working hard to make the financial sector stronger and more transparent. While it has introduced stricter rules for NBFCs to ensure they don’t take on too much risk, this has actually been a good thing for big investors.

Strong regulations mean the sector is more stable and less prone to major collapses. This gives global investors the confidence that their money is relatively safe. They see a well-regulated market with clear rules of the game, which is always attractive.

Small Banks vs. NBFCs vs. Big Banks: A Quick Comparison

To understand the landscape better, let’s see how these different players stack up against each other.

A New Era in India’s Soft Drink Market

Until recently, the Indian soft drink scene was pretty simple: Coca-Cola and Pepsi ruled almost every fridge and shop. For years, these global brands had a near-monopoly, owning over 90% of a market now worth about ₹60,000 crore. But now, two Indian brands, Campa and Lahori Zeera, have turned the tables and started a real “fizzy war.”

The buzz began as Indian consumers started craving fresh, local flavours and pocket-friendly rates. This pushed open the door for new players. As a result, in just the first nine months of 2025, Campa and Lahori Zeera’s combined market share almost doubled—from 7% to around 15%—while Coke and Pepsi together slipped down to 85%. Losing that much ground in a year is a big wake-up call for the giants.

Meet the Contenders

Campa: Old Favourite with a Modern Twist

If you remember the ’80s and ’90s, Campa Cola probably brings back memories. It was “The Great Indian Taste” before Coke and Pepsi even arrived in India. After disappearing for a while, Campa made a comeback when Reliance bought the brand in 2022 and relaunched it in 2023.

Reliance went all-in: they revived nostalgia, set prices low with a ₹10 pack, spread Campa through their massive distribution network, and spent big on advertising. This meant that you could find Campa everywhere—from small stores to metro stations, and even being promoted by celebrities.

Lahori Zeera: A Taste of India

Lahori Zeera started out in Punjab in 2017 and quickly clicked with people who love desi flavours. Instead of trying to copy colas, it offered a fizzy drink based on cumin (jeera), a spice loved all across India.

Lahori’s smart moves included sticking to the ₹10 price, focusing on local shops through 2,500+ distributors, and launching new drinks like Aamras and Masala Cola. Their mission: bring desi tastes to the entire nation, planning to cover up to 90% of India’s pin codes.

Why Are Campa and Lahori Zeera Winning?

The answer is simple: they nailed the “three Ps”—Price, Palate, and Placement.

Price: Both brands targeted the ₹10 price point, making their drinks super affordable. Coke and Pepsi were forced to respond by bringing back ₹10 bottles.

Palate: Instead of only Western colas, these new players leaned into Indian tastes. Campa brought nostalgia; Lahori Zeera introduced traditional spices and mango flavours.

Placement: Reliance got Campa into every corner shop and supermarket, while Lahori Zeera built up its network from scratch, focusing on the millions who shop at local kirana stores.

Here’s a quick comparison:

A shocking fact: a ₹1 crore retirement corpus today will shrink to just ₹20 lakh in real terms after twenty years in India.

NRI wealth management demands specialized planning for retirement in India. The reason is clear. India’s inflation rate stays consistently higher than many wealthy countries at 6-7% annually. Your overseas retirement calculations will fall short here.

Life expectancy has increased significantly. Indians now live between 78-82 years, which means retirement savings must last 25-30 years or more. The combination of longer lives, limited social security systems, and evolving family structures creates unique money management challenges.

Managing NRI wealth becomes complex due to its multi-country nature. Your income might come from one country, assets from another, family stays in India, and retirement plans could exist in a third location. Recent tax changes have also made this financial landscape more challenging.

This piece explains why global retirement plans often fail in India. You’ll learn practical strategies to secure your financial future when returning home. Let’s tuck into creating a retirement plan that safeguards your wealth across borders.

Why Global Retirement Plans Don’t Work in India

Traditional retirement plans built for western economies don’t work well in India. NRIs coming back need a different approach to manage their finances here. Your overseas retirement calculations need major adjustments, and here’s why.

India’s high inflation vs. developed countries

NRI wealth management in India faces its biggest challenge from high inflation rates. The US, UK, and Singapore see inflation rates of 2-3%. India’s rates stay between 5-7%. This small difference might not seem much at first, but it can alter your purchasing power drastically over a 20-30 year retirement period.

Let’s look at what 7% inflation does – prices double every 10 years. Your retirement savings need to grow much faster to keep their value. Retirement plans based on lower inflation rates won’t support your lifestyle in India.

Currency depreciation and its long-term effect

The Indian rupee has lost value against major currencies like USD, GBP, and EUR. NRIs benefit from this during their saving years when they convert foreign money to INR. But this advantage turns into a problem during retirement if you keep large amounts in foreign currencies.

Currency depreciation adds up, and moving money to India becomes more expensive. Your regular income from overseas investments loses buying power in India unless you protect against this risk.

Why foreign retirement funds lose value in India

Foreign retirement accounts like 401(k)s, IRAs, or pension plans suit western economies and tax systems. These accounts face several problems in India:

1. Their growth (usually 5-7% yearly) barely matches Indian inflation
2. The 4% withdrawal rule doesn’t work in high-inflation settings
3. Tax agreements between countries might tax your withdrawals twice

These foreign retirement accounts lack inflation protection, so your money loses real value against India’s rising living costs. You’ll need to rethink how you withdraw and allocate your assets specifically for India.

Understanding the New Tax Landscape for NRIs

Tax compliance has become more complex for NRIs who are coming back to India. You need to understand these tax rules to manage your wealth effectively across borders.

FATCA, FBAR and Indian disclosure rules

The Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers to report their foreign financial assets to the IRS on Form 8938. This rule works differently from FBAR (FinCEN Form 114), which kicks in when your foreign financial accounts go over $10,000 (about ₹8.4 lakh) at any point during the year.

The penalties for not following these rules are harsh. You could face fines up to $10,000 (about ₹8.4 lakh) for honest mistakes. The fines jump to $100,000 (about ₹84.3 lakh) or 50% of your account balance if you knowingly break the rules.

NRIs should know that India shares data with the U.S. and other countries, which makes it hard to hide anything. This affects how you should plan your investments before and after retirement.

TCS and TDS changes in Budget 2025

Budget 2025 brought good news for NRIs through changes in Tax Collected at Source (TCS) rules. The limit for foreign remittances under the Liberalized Remittance Scheme went up from ₹7 lakh to ₹10 lakh.

The rules now exempt education remittances from specified financial institutions from TCS. These changes give you more freedom to manage your money across borders.

Capital gains tax on mutual funds from April 2025

Mutual fund taxes went through big changes from July 2024. The tax on short-term equity mutual fund gains jumped from 15% to 20%. Long-term capital gains tax also increased from 10% to 12.5%, but you now get a bigger exemption of ₹1.25 lakh instead of ₹1 lakh.

NRIs face these tax deductions at source: