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SYSTEM ERROR IN INDIA'S SILICON VALLEY
By M H AHSAN
The transformation from a laid-back "pensioners' 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, Bangalore has a vast technically skilled manpower pool. This, along with its greenery and pleasant climate, is what attracted domestic and foreign information-technology (IT) companies. While the influx began in the 1980s, it gathered momentum in the 1990s. Today, Bangalore is home to more than 250 high-tech companies, from Indian IT top guns Infosys and Wipro, which are headquartered here, to global giants Intel, IBM, Cisco, Oracle, SAP, Texas Instruments and Lucent, among others. The United Nations Human Development Report has ranked Bangalore fourth as a global hub of technological innovation.
But Bangalore's success is proving to be its undoing as well. A booming job market has resulted in massive population growth - a 42% increase from 1981 to 2001. The city is bursting at its seams. Its infrastructure is under tremendous strain. Power and water shortages are frequent. Poor public transport has led to a massive increase in the number of private vehicles on its narrow and potholed roads, resulting in maddening traffic snarls.
For the IT industry, endless traffic jams and power shortages mean delays and lost productivity. Recently, in a rather belated response to the complaints of Bangalore's IT czars on the city's roads, the central government announced a four-lane superhighway from Bangalore to Electronic City, where several IT companies are located. A third of the costs are to be borne by IT companies. While this is a step in the right direction, a lot remains to be done to address the silicon city's infrastructure problems.
The real problem is that local officials do not even seem to think there is a problem. The sorry state of affairs wouldn't have seemed as frustrating or hopeless had Karnataka state, of which Bangalore is the capital, had a government more responsive to the city's residents and its software industry. The priority accorded to IT by the new government can be gauged from the fact that five months into power, the state doesn't have an IT minister. Not surprisingly, the IT industry, which has been complaining for a while about the infrastructure bottlenecks and an unresponsive government, has now simply given up on Bangalore.
In July, Vivek Paul, chief executive officer and vice chairman of Wipro, said high wages and attrition rates along with poor infrastructure made it difficult for the company to expand in Bangalore. Wipro's discontent made headlines. Within days, delegations from other Indian states were making a beeline for Bangalore to persuade Wipro and others to shift base.
First off the block was neighboring Tamil Nadu. In less than a fortnight, Vivek Harinarayan, the state's IT secretary, was in Bangalore to meet Wipro chairman Azim Premji. Drawing attention to Chennai's plus points as an investment destination for IT - high connectivity, land availability and a low attrition rate of 7-13% (compared with 50-100% in cities such as Bangalore, Mumbai and Hyderabad) - Harinarayan assured Premji of a consistent IT policy. Wipro is now expanding its Chennai and Coimbatore facilities by 85 and 25 acres (34 and 10 hectares) respectively.
On August 16, the IT minister of the eastern state of West Bengal, Manab Mukherjee, submitted a proposal to Infosys mentor Narayana Murthy, offering his state's Salt Lake City as an IT hub. The following day, a delegation from Madhya Pradesh led by its then chief minister, Uma Bharti, was in Bangalore promoting Bhopal and Indore as potential centers of IT investment.
IT industry watchers say that where Tamil Nadu scores over Karnataka is that it has a government that is not hostile to IT. Tamil Nadu was the first state in the country to come out with an IT policy, in 2002. It has set up IT parks and has made space available for companies to expand. It is also one of the best-connected states in the country, with an optic-fiber network of more than 14,000 kilometers. Infrastructure facilities in its capital, Chennai, are among the best in India.
When Dun & Bradstreet Corp (D&B), software firm Cognizant's parent company, decided to set up a development center in India, it carried out a "threadbare evaluation of different low-cost locations across the globe and zeroed in on Chennai", says R Chandrasekaran, Cognizant managing director. While India's IT sector has grown at 28% annually, Chennai's has grown at 60%, thanks to the proactive strategy of the Electronic Corp of Tamil Nadu (Elcot), the state government's nodal agency promoting IT investments in Chennai.
A surprise entry into the race for IT investment is Kolkata, better known for its urban squalor and trade unionism. But today, Kolkata's intellectual talent and low costs are drawing in the giants - Wipro is building a 16-hectare campus outside the city, second only to its Bangalore headquarters, while IBM's expansion plans in Kolkata will see this center emerge as the second-largest facility in India.
In West Bengal, the government - a communist one - has played a crucial role in Kolkata's transformation from a "dying city" to a high-tech hub. It has sought to lure investment by offering generous incentives to investors, including low electricity tariffs and by declaring IT an essential industry. It has even called in consultancy firm McKinsey to help draw investment. And its infrastructure is improving rapidly. Notorious for power cuts until the late 1980s, West Bengal is today one of the few power-surplus states in the country.
West Bengal's revenue from the IT industry is no doubt small. In 2003-04, the state revenue from IT exports accounted for 2.2% of India's total earnings from IT. The leader - Karnataka - on the other hand accounts for a third of India's IT exports. But West Bengal seems geared to close the gap.
Pune, in the western state of Maharashtra, is another city gaining from Bangalore's fading charms. Its proximity to India's commercial and financial capital Mumbai, its large IT skill pool, improved infrastructure and low attrition rates have contributed substantially to its sheen.
It is the unexpected corners of the country - the smaller towns and cities - that are rapidly emerging as the new magnets, especially as outsourcing centers. A study conducted by the National Association of Software and Service Companies (NASSCOM) with management consultancy major KPMG says such cities as Jaipur, Pune, Mohali, Ahmedabad, Vizag and Kochi are increasingly attracting IT and outsourcing firms.
The study pointed out that Jaipur, hitherto ignored by big IT companies and outsourcing firms, is poised to emerge as a major hub because of government initiatives and several attractive features of the city itself. "Jaipur retains the advantage of a small city - lower travel time and real estate and power availability. It has gained global visibility as the tourism hub of Rajasthan and is trying to leverage this for IT and ITES [IT enabled services] industry," the study said. According to NASSCOM, about 30% of India's outsourcing revenues ($12.5 billion last year) will be headed to smaller cities within a few years.
While the emergence of small towns as new centers of IT and ITES is a good thing, the possible decline of Bangalore is worrying many. 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", Karnik said in a recent interview.
IT officials in Bangalore are not worried, however. They see little reason for panic and cite statistics to prove their point. Bangalore remains at the top with software exports totaling $4.2 billion last year, registering a 46% growth rate (the national average was 28%). There were 168 new investments the previous year, 110 of them foreign direct investments (FDIs). This year, 62 companies have invested in Bangalore, 50 of which are FDIs.
IT officials refuse to admit that Bangalore's crumbling infrastructure is scaring off investment and expansion. B V Naidu, director of Software Technology Parks of India, for instance, dismisses the seriousness of Bangalore's crumbling infrastructure and describes it as "a temporary pressure on infrastructure".
Officials in Bangalore see the expansion of companies such as Wipro, Infosys and IBM outside Bangalore as a corporate strategy, driven by high competition and costs in Bangalore. Indian IT companies, they argue, are unable to match the high salaries offered by multinational giants and are thus expanding by branching out in cheaper locations.
The Karnataka government is convinced the expansion plans of IT companies outside Bangalore won't have any adverse effects on the city's status as the leading international IT hub. But the industry thinks differently. It sees this as the beginning of a hemorrhage. While other cities are drawing in investment because of their governments, it seems to them that Bangalore's IT industry will have to survive in spite of it.
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