Mysuru, Mangaluru or Hubballi? What Karnataka’s new policy is offering to pull tech startups out of Bengaluru

Karnataka's new IT-BT Policy offers substantial financial incentives to encourage startups to relocate from Bengaluru to Tier-2 and Tier-3 cities.

Karnataka is moving decisively to decentralise its tech economy, offering substantial financial incentives to shift companies out of Bengaluru.

In a bid to pull companies out of Bengaluru’s overcrowded, high-cost ecosystem, the state government has unveiled a new IT-BT Policy. (REUTERS)

In a bid to pull companies out of Bengaluru’s overcrowded, high-cost ecosystem, the state government has unveiled a new IT-BT Policy (2025–2030) that literally pays startups and tech firms to shift their operations to Tier-2 and Tier-3 cities.

The policy outlines plans to build and expand innovation clusters, startup zones, and sector-specific hubs in cities like Mysuru, Mangaluru, Hubballi-Dharwad, Shivamogga and Kalaburagi. The policy sets a target of 30,000 startups by 2030, with at least 5,000 coming from Tier-2/3 cities.

The new policy includes 50% reimbursement on office rent (capped at ₹2 crore), along with 30% relief on property tax for three years. Companies will also receive up to ₹50,000 per employee as a ‘talent relocation reimbursement’.

Startups shifting out of Bengaluru can also expect a full waiver on electricity duty for five years, paired with a 25% rebate on telephone and internet bills up to ₹12 lakh. For companies investing in innovation, the government is offering 40% reimbursement on R&D expenditure up to ₹50 crore, with additional capital incentives for work in AI, ML, quantum computing and blockchain. In total, Karnataka has earmarked nearly ₹960 crore to fuel this shift over the next five years.

Applications are expected to open by mid-December 2025; and each incentive category will be capped at 100 beneficiaries, making it a first-come, first-served race for founders.

How did Linkedin users react?

The announcement has sparked intense interest online after investment banker Sarthak Ahuja broke down the policy’s biggest incentives in a widely shared LinkedIn post.

Some commenters praised the move as a necessary correction to years of Bengaluru-centric growth. One user applauded the plan saying it could “rebalance hiring” by easing salary inflation and giving startups healthier unit economics. Another person called it a “great initiative” that could finally accelerate the development of secondary cities and spur statewide economic growth.

But the idea wasn’t universally welcomed. Several voices argued that cities like Mysuru and Mangaluru should be protected from Bengaluru-style expansion, calling urbanisation a threat to their current character.

“Don’t ever think about touching Mysore or Mangalore,” wrote one strongly worded reaction, accusing the government of repeating past mistakes instead of solving Bengaluru’s existing problems.

Still, many felt the incentives were too compelling for founders to ignore. As one commenter put it, “This is huge for startups looking to scale outside Bangalore… first-come, first-served could make all the difference.”