Bangalore's IT dream fades in the rain

Bangalore's IT dream fades in the rain
By Sudha Ramachandran
Asia Times

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.