Bangalore's IT dream fades in
the rain By Sudha
Ramachandran
BANGALORE - The incessant
rains that submerged vast swathes of Bangalore in
the last week of October couldn't have come at a
worse time. The rains came on the eve of
Bangalore's annual information technology
exhibition - BangaloreIT.in, billed as one of
Asia's hottest IT events.
Not only did the
rains swamp the technology fair, but worse, they
laid bare Bangalore's crumbling infrastructure at
a time the city, India's hi-tech hub and capital
of southern state of Karnataka, was preparing to
showcase itself as the country's most attractive
investment destination for IT.
The floods
caused scores of houses to collapse, drains to
overflow into homes and entire
stretches of road to wash away. Water entered
office buildings, including one of the offices of
Wipro, India's third-largest software exporter.
The water was a wake-up call for the city,
although its infrastructure has been crumbling for
years. Residents and businesses have been
complaining about power outages, narrow, pot-holed
roads, endless traffic jams, inadequate public
transport and abysmal drainage facilities.
In particular, IT companies have been
vocal in their criticism of the government's
failure to improve matters. Things had got so bad
that 135 frustrated IT companies had called for a
boycott of BangaloreIT.in this year.
They
were only placated at the last minute by promises
of improvements from Karnataka Chief Minister
Dharam Singh. Singh has good reason to fear
disgruntled IT companies.
Bangalore
contributes 36% of the country's total software
exports, expected to cross US$16 billion in total
this year. It accounts for 97% of Karnataka's IT
and allied service exports, which grew to $6.3
billion in 2004/05, up from $4.13 billion a year
earlier.
In 1998, there were 680 IT
companies in Bangalore; there are 1,584 today, of
which 622 are multinational corporations.
Bangalore is home to Indian IT top guns such as
Infosys and Wipro, which are headquartered there,
and global IT giants such as IBM and Oracle.
More than 200,000 people are employed in
IT and business process outsourcing companies
based in Bangalore. Besides, the IT sector has
nearly a million people feeding off it - from
guest houses to car rentals and security services.
State antipathy If the rains
laid bare what the IT industry has been grumbling
about for years, an ugly spat less than a week
earlier between a powerful anti-IT politician and
India's leading IT icon and software czar exposed
the deep antipathy to the IT industry that exists
within the present Karnataka government.
State elections in 2004 brought to power a
coalition between the Congress Party and the
Janata Dal-Secular (JD-S), a pro-farmer party.
While JD-S chief Deve Gowda's anti-IT bias has
been visible for several months, his criticism of
Narayana Murthy, chairman of Infosys Technologies,
India's second-largest software exporter, brought
the rift between the political establishment and
the IT industry to the fore.
Gowda
questioned Murthy's contribution to a project to
provide Bangalore with a $313 million
international airport by 2008, which Murthy
headed. The war of words that followed resulted in
Murthy quitting the project. It dealt a severe
blow to private-public partnership to improve
Bangalore's infrastructure. And it is believed to
have also severely jolted investor interest in
Bangalore. Gowda's public antipathy to the IT
sector, his allegations that IT companies are
being given concessions such as land at throwaway
prices and his opposition to investment in urban
infrastructure are not because he is anti-IT per
se, but the result of shrewd political
calculations.
In the last election, the
IT-friendly government under S M Krishna was
rejected by rural voters. Gowda, a former prime
minister, knows that it is in rural Karnataka that
the electoral fate of his party will be decided.
He knows that an IT-friendly, city-centric image
might win him accolades among Bangalore's software
crowd, but it is a pro-farmer image that will win
him the votes.
It is with this in mind
that Gowda, who has always projected himself as a
mannina maga (son of the soil) and a
champion of the small farmer, has gone after
Bangalore's IT companies. Gowda's confrontation
with Murthy also has to do with the fact that the
latter is close to Krishna, Gowda's political foe.
The cumulative effect of the public spat
between Gowda and Murthy over infrastructure
issues and the total collapse of infrastructure
during the October downpour was that it has
confirmed the IT industry's growing doubts over
Bangalore's future as the country's sustainable
Silicon City.
Fading
dream Bangalore's transformation from a
sleepy, laid-back "pensioner's paradise" to
India's technology hub and Asia's fastest-growing
city has been dramatic.
Home to India's
premier scientific research institutes and
engineering colleges - Karnataka has the largest
number of engineering colleges in the world -
Bangalore has a vast technically skilled manpower
pool.
Besides, Bangalore was always a
comfortable city in which to live. Its cool
climate and generally cosmopolitan culture drew in
several multinationals.
B S Murthy, chief
executive officer, Human Capital, a
Bangalore-based recruitment firm, points out,
"Professionals are ready to move to Bangalore any
time, though they may have reservations to go to
cities like Chennai, Kolkata, Mumbai or Delhi."
This might have been the case, but
perceptions are changing.
"If the response
to the recent IT fair in India's technology
capital - Bangalore - is anything to go by, it
does seem that the end of the road for Bangalore's
IT ambitions is not far away," an unnamed vice
chairman of a leading Indian software company was
reported as saying in the media.
Indian IT
companies have already begun to look elsewhere.
Last year, Wipro chief, Azim Premji,
announced that Wipro would be looking "beyond
Bangalore for expansion and growth". Wipro's
expansion plans include Kolkata, Pune and Kochi
instead of Bangalore."
And he has been as
good as his word. Last month, Wipro signed an
agreement with the state of Andhra Pradesh to
acquire 100 acres of land in the city. Explaining
the decision, Premji said: "The key reasons
include increased commuting time and high
attrition [in Bangalore]. Qualified engineers and
graduates are coming up in other cities and
states.
"We will take our business
wherever there is opportunity for our employees.
The reality is that there is opportunity outside
Karnataka and outside Bangalore. We have to be
present where talent is available and
infrastructure is superior."
"Bangalore's
challenge is that it has grown at 11% per annum
over the past decade, and infrastructure has
obviously not kept pace," said T Mohandas Pai,
Infosys chief financial officer.
Greener pastures Unlike the
IT-hostile sections in the Karnataka government,
other states are rolling out the red carpet for IT
companies.
Neighboring Tamil Nadu, for
instance, has been aggressively wooing them,
drawing attention to Chennai's attractions as an
investment destination for IT - high connectivity
and land availability.
Tamil Nadu is in
fact bringing the battle to Bangalore's doorstep -
it is setting up a software technology park at
Hosur, an hour's drive from Electronics City in
Bangalore.
Andhra Pradesh, West Bengal,
Rajasthan, Punjab and Kerala are other states that
are extending a variety of incentives to draw in
IT companies from Bangalore.
Genpact, a
leading back-office firm spun off by General
Electric, and Progeon, a subsidiary of
Nasdaq-listed Infosys, are already in Rajasthan's
capital, Jaipur.
The Andhra government has
promised Infosys 300 acres of land at less than
market price and tax holidays. While Infosys will
not shut shop in Bangalore, its future expansion
could move outside the state.
In response,
Karnataka government officials say that the
multinationals still prefer Bangalore.
While this may be so, the multinationals
"are not putting their money in the city. So the
buildings are rented or leased. While Intel and
Dell have made marginal investments, most of the
other companies operate on the 'plug and pull'
concept. They can pull out on a day's notice if
need be," writes Stephen David in India Today.
Government officials insist that Bangalore
has not lost its appeal as an investment
destination. According to officials, Bangalore
attracted 198 new firms in 2004-05, compared with
168 new companies that set up shop in 2003-04.
They say that the city attracted 65 new technology
companies in the first four months of the current
fiscal, a 20% growth over the corresponding period
last year. Of the 65 new companies, 45 of them are
100% foreign equity owned.
But this
picture is disputed by bodies representing
industry.
According to the Bangalore
Chamber of Industry and Commerce, an apex industry
body representing the interests of medium and
large companies in Karnataka, investment in
Bangalore is beginning to fall. "The slowdown is
already evident with the dwindling number of
software firms choosing Karnataka as their
preferred destination. Statistics reveal that as
few as 30 new companies set up their operations in
2004-05, compared to 52 in the previous year."
The National Association of Software and
Service Companies (NASSCOM), the chamber of
commerce of the IT software and services industry
in India, has been drawing attention to the fact
that Bangalore's fading charms as an investment
destination for IT has implications not just for
Bangalore or Karnataka, but for India. NASSCOM
chief Kiran Karnik has said his concern is not
that IT investment from abroad will go to other
Indian cities, but that it will not come to India
at all, "because when they think of India, they
think of Bangalore".
Brand Bangalore is
certainly not down and out, but it is losing some
its its allure.
Sudha
Ramachandran is an independent
journalist/researcher based in Bangalore.
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