The Bangalore story: Is it over?

The future of Bangalore
The coalition partners running Karnataka are sparring. And Bangalore is caught in the middle. Will politics spoil the fate of India's IT capital?

Businessworld


A year back, questioning Bangalore's future would have appeared absurd. The city is a mandatory stop for visiting heads of state. Its techies are feted and feared universally. It is home to storied information technology firms. Many of India's new-age business icons live and work in the city. In effect, India's position as a superpower on the rise has much to do with Bangalore's emergence as a new technology capital, second only to Silicon Valley. Over the last decade, Bangalore's economic output grew at a brisk 11.7 per cent, much faster than the whole country's.

None of this has really changed. Yet, there are many who have begun questioning Bangalore's future and its ability to remain an attractive investment destination. This army of sceptics include some of the biggest investors in the city - people like Bob Hoekstra, CEO of Philips Software, and N.S. Raghavan, former joint managing director of Infosys Technologies, senior members of industry bodies like Nasscom, and countless people who work in Bangalore. Even Prime Minister Manmohan Singh recently said: "If Bangalore fails, India fails." The thought had indeed crossed his mind.

The common arguments put forth by naysayers have to do with the city's infrastructure, which has collapsed. Hotel rooms are hard to come by, it takes hours to travel a few kilometres, there are endless queues at airport baggage retrieval belts, and so on. Meanwhile, Bangalore's technology companies are struggling with attrition rates that are among the highest in the country. They are fighting a bruising battle to retain talent at extraordinarily high salaries. Partha Iyengar, vice-president of Gartner, a consultancy, sums up the city's predicament. "Till recently, if you suggested Bangalore as an outsourcing destination, you couldn't lose your job. But these days, you might just."

But poor infrastructure or high attrition rates are just a sideshow to the Bangalore story. What is far more germane to the city's future is the politics being played out in the state - between coalition partners Deve Gowda, former prime minister and leader of Janata Dal Secular, and Dharam Singh, the state's chief minister from the Congress Party. Trapped in the middle of this power play is Bangalore.


Despite being allies, the functioning of the Gowda-Singh combine seems far from smooth. Singh himself says so. "Deve Gowda has a tendency to make a big deal out of a small issue," says the chief minister. Gowda, for his part, argues that he needs to play the Opposition in Karnataka - never mind that his party accounts for 17 ministers in the state Cabinet. Gowda says he has no alternative. "The recognised Opposition is hand in glove with the ruling party for the last five years... the Opposition should be functioning like a watchdog," he says. A senior bureaucrat explains that this is a coalition of equals, whose ideologies aren't quite aligned, and who are battling for the same political space.

Significantly, Gowda also believes that Bangalore needs to take a back seat in the development of Karnataka. In his interview to Businessworld a fortnight ago, he said it's high time other places like Mangalore and Mysore were given equal importance and an opportunity to flourish. He seemed to blame Bangalore's ills on its fast growth, and hinted that if the growth rates tapered, many of the problems might disappear.

"Decongestion is one of the main issues. It (Bangalore) is one of the fastest growing cities in the country. What will be the position of traffic congestion, pollution, drinking water problem [a few years down the line]? Do you know that when I left the state there were 238 slums in Bangalore, and today there are 565? You must also look at the other side of things. We are not here to only develop Bangalore," he said. His views are reminiscent of West Bengal's Left Front government, which, in the early part of its rule, deemed that Kolkata was irrelevant. It took a while for the government to change its stance and even longer to undo the damage that was done.

The IT capital
Number of IT and IT enabled service (ITES) companies in Karnataka in March 2005: 1,520. Of them, 1,468 are in Bangalore
Number of foreign companies in 2002-03: 79; in 2003-04: 110
Total investment by IT companies in Bangalore in 2002-03: $227 million; in 2003-04: $437 million
The city is home to about 1,400 heads of IT companies and R&D units
On an average, Bangalore attracts four new IT companies every week
Total investment by BPO and ITES companies
in 2002-03: $113 million;
in 2003-04: $225 million
Number of new IT companies who set up shop in Bangalore in 2004-05: 195




Now, even if Singh doesn't share Gowda's views - by all accounts, Singh's views are a little more nuanced - he can't ignore his partner's utterances altogether. Gowda's 57 MLAs will be critical if Singh, whose Congress Party has 64 MLAs, wants to carry on being the chief minister. (He needs 113 MLAs for a simple majority in the state legislature's lower house.)

Politics aside, Singh feels somewhat cornered on the issue of Bangalore's future. On one side, he has Gowda to deal with, who rarely passes up an opportunity to embarrass him. On the other, the people of Bangalore, especially the powerful IT lobby, is carrying out a shrill campaign on how the city is continuously declining and refuses to acknowledge any of Singh's efforts to improve things. He believes that some part of it is a sponsored propaganda against him, that Bangalore has prejudged him and that his actions won't change anything.

He told BW that he has made an honest attempt to engage the IT companies and met heavyweights such as Infosys chief mentor N.R. Narayana Murthy and CEO Nandan Nilekani to show how the government is trying to fix the city's infrastructure. "But I can't understand why they're still complaining. What have we stopped, especially where infrastructure is concerned?" he asked anxiously. In another interview a few days later, Singh retorted that Narayana Murthy sits in the US and talks of Bangalore's ills. It indicated that Singh wasn't taking the criticism well anymore, and perhaps, didn't really care about what people said.

None of this augurs well for the city of Bangalore.




Gowda knows fully well the significance of Bangalore. In his hour-long conversation with BW, he repeatedly cited his credentials as a reformer and a pro-IT man. "There was an impression in the minds of some economists and policy makers that Deve Gowda was opposed to the IT sector. And I am opposed to creating infrastructure for attracting investments. The first IT Park was cleared by me in 1995. I gave 10 years' tax holiday to the IT sector," he said, sometimes referring to himself in the third person.

Gowda acknowledges that Bangalore is the state's economic engine, accounting for over half its revenues. In other words, some of the money that Gowda talks of investing in smaller cities like Mysore will have to come from Bangalore. (Of the 1,520 IT and IT-enabled service companies in Karnataka as of March 2005, over 90 per cent were in Bangalore.) Moreover, in the past couple of years, better property tax collections and projects done by the Bangalore Development Authority have generated more funds for the city and reduced the state government's budgetary support for Bangalore. "The money freed up can be used for other things," says a former member of the Bangalore Agenda Task Force.

So why is Gowda making statements that could seriously impair Bangalore's - and potentially the entire state's - economic health? Karnataka's other cities are, after all, nowhere close to being economic powerhouses.

Political observers say the real reasons for his posture are not as apparent as Gowda puts it. They argue that Gowda turning Bangalore into a political battleground has less to do with Singh and more to do with S.M. Krishna, Karnataka's former Congress chief minister (now the governor of Maharashtra), and his regime. He is Gowda's real rival, not Singh. There are different aspects to this rivalry. The first has to do with the community vote bank. Both Krishna and Gowda come from the same community - the Vokkaligas. And the tussle between the two is for emerging as the undisputed leader of the community. "In some ways, it's a battle for the old Cauvery heartland," says a bureaucrat.

Gowda also sees Bangalore as Krishna's town. (In the last elections, the Congress bagged 16 of the 17 seats in Bangalore.) Gowda believes he needs to "win Bangalore" to dethrone Krishna conclusively. The educated middle classes, who believe that Bangalore's moment of glory is at hand, do not identify with Gowda. But there is a section - mainly slum dwellers, who make up about a quarter of the city's population - that feels increasingly disenfranchised in Bangalore's hi-tech glory. And it's them that "humble farmer" Gowda is trying to address through his scepticism.

Singh says he is caught somewhere in the middle of this tussle. The irony is that Krishna is Singh's senior leader. Singh was minister in charge of the public works department in Krishna's Cabinet, the very regime Gowda is attacking. Those close to Singh believe that he has no option but to live with Gowda's jibes. But the politician in him also believes that if he can last it out, he may just create history. "Last year, nobody thought that I would last one year," says Singh. "See what has happened." This June, the coalition completed a year in office.

Singh's position on Bangalore is, of course, somewhat different from Gowda's. Like Gowda, he publicly admits that during Krishna's tenure there was an overemphasis on Bangalore, perhaps to the exclusion of everything else. But he also acknowledges that there are problems in the state capital that need to be addressed. Those who have close links with the Congress say that Singh is under tremendous pressure from Sonia Gandhi to fix Bangalore. So his opinions may not just be his, but also that of the Congress high command.

Some months back, the city's IT heavyweights brought Rahul Gandhi and Planning Commission deputy chairman Montek Singh Ahluwalia to Bangalore to show them the state of the city's infrastructure. Soon after, Gowda got Sonia Gandhi over to visit some of Bangalore's slums to show her the destitution there. It's amply clear where Gowda's priorities are.

It is this kind of political football that gives people like Philips Software's Hoekstra little hope. "I sense that there is no real interest in the city. I don't think the government is interested. We promoted a conference called Healthy Cities in January. But the government hasn't done much on what was suggested at the conference. There is still no follow-up."

Bureaucrats say that politicians are so busy managing the coalition that they have little time for other things. For example, late last year, Gowda's JD(S) and Singh's Congress differed on the progress of the Cauvery water tribunal. The JD(S) insisted that the Supreme Court be approached to recast the tribunal, which they felt was biased. Leading jurist Fali Nariman advised the Karnataka government against this, but the JD(S) was insistent. At the Supreme Court, the petition was rejected. All this was a tremendous waste of government time.

IN the midst of all this, there is a paradox. As the table 'If Not Bangalore...' shows, some companies have begun taking their investments elsewhere. "First-timers to India like Bangalore. But many who have investments here are already beginning to look at other cities," says Avinash Vashistha, managing partner of neoIT, a Bangalore-based consultancy. A senior bureaucrat says that Bangalore was earlier always marketed as a destination by the city's industry, but now that has stopped.

Yet, as the following article argues, Bangalore is still managing to attract some of the best technology work being outsourced to India. So, while Singh and Gowda discuss the relevance of Bangalore, the high-end work coming there could also end up shaping the city's future.

The big question: will politics spoil it? Some say that Bangalore's existing technology cluster is so evolved that high-end work will keep flowing in, though the low-end stuff could go elsewhere. Others say that if things continue the way they are, it will start hurting in about six months. That leads us to another poser: if Bangalore is to become a hub for truly high-end work, it needs to attract talent from all over the globe. Given what the city is going through, will they come?

Much will depend on how Singh manages things from here. Those who know him well say his instincts are those of a "supreme pragmatist". If that means managing the expectations of Delhi for a coalition in Bangalore, it also means doing whatever it takes to stay in power. (Singh admits that Sonia Gandhi did talk to him about getting the delayed airport project off the ground, and that Delhi understands his limitations.) Also, there are rumours that Krishna may return to active state politics.




"Don't forget that he has won eight consecutive legislature terms in Jewargi from 1972. That shows his political mettle," says an observer. Singh has realised that while Bangalore may not count much by way of votes, bad press could actually damage his credibility - not just among the voters, but also within the party. "He doesn't want to be seen as the man who destroyed Bangalore," says an observer. Also, the IT industry directly employs some 3 lakh people in Karnataka, most of them in Bangalore.

Predictably, he has turned his attention to solving the city's infrastructure issues. To be fair, Singh's government isn't responsible for the mess that Bangalore's infrastructure is. Given that things like these don't deteriorate overnight, Krishna's government and those before deserve the lion's share of the blame. "But perhaps a tipping point has been reached in the last one year," says Nasscom president Kiran Karnik. And consequently, it is Singh's government that is getting all the flak.

While Gowda believes this is a conspiracy against him ("It's a whispering campaign to malign me... ever since I became PM"), Singh sees it as an opportunity to prove himself. One of the projects he hopes will redeem him as a Bangalore aficionado is the new airport, which according to Singh is through. (The chief minister says the next project that will improve the city's infrastructure is the Bangalore Metro.)

Insiders at Vidhana Soudha, Karnataka's seat of power, use the airport project as evidence of Singh's ability to manage the coalition. Singh managed to overcome some opposition from JD(S) over the state support the project would get.

But it's unlikely that Singh will be let off so easily. Most senior executives BW spoke to said they would believe Singh only after he demonstrates something concrete. Karnataka's chief minister clearly faces a credibility problem in Bangalore. While some of that has to do with the statements coming from the senior members of his coalition, it also has something to do with Singh being compared to Krishna.

Some argue that if you were to count the specific things that Krishna did for the IT sector in Bangalore, you would be hard-pressed to find concrete achievements. "His biggest achievement was that he stayed out of the way. Also, he presented the right face to overseas investors, and was smart about positioning Bangalore," says the CEO of a local company. The current CM's earthy style, unfortunately, finds few takers in a city of high-flyers. That could also explain the credibility problem.

It's becoming increasingly clear that Singh needs to be given space to manoeuvre. Some of Bangalore's opinion makers have already begun doing so. After having famously said that he was tempted to leave Bangalore, Wipro chairman Azim Premji (and his company) has toned down his criticism of Singh's government. Infosys is also believed to be doing the same. Hopefully, Singh will emerge as his own man and do what is right for the city - or forever be condemned as the man who destroyed India's Silicon Valley.