Karnataka has to rebuild

Karnataka has to rebuild

BLOOMBERG

February 3 H D Kumaraswamy took over today as Chief Minister of the Indian state that's home to Bangalore, the country's technology hub, where he will have to restore political stability, fix the rundown infrastructure and boost the ``low morale'' of companies.

Kumaraswamy, son of former Indian Prime Minister H.D. DeveGowda, took the oath of office today in Bangalore as a faction of the Janata Dal (Secular) party formed a coalition government withthe opposition Bharatiya Janata Party in the southern state of Karnataka.

The 46-year-old former film producer last month took controlof the JD(S) and withdrew support to the 20-month-old coalition government led by the Congress party, forcing Chief MinisterDharam Singh to resign. Kumaraswamy now has to keep the new alliance together and placate companies angered by the state'sfailure to improve roads and build a new international airport.

``As a top priority, the new government must work on a war footing when it comes to infrastructure development,'' said ABB Ltd. Managing Director Ravi Uppal. The Bangalore-based company is the Indian unit of the world's biggest maker of power transformers and Karnataka accounts for more than a quarter of its 4,000 employees.

The new administration needs to complete construction of highways and accelerate projects like the mass transportation system for Bangalore, Uppal said on Feb. 1. The city accounts for almost a third of India's $17 billion in software exports.

Companies, Population

Bangalore is home to Infosys Technologies Ltd. and Wipro Ltd., two of India's three largest software exporters, as well as defense companies such as aircraft-maker Hindustan Aeronautics Ltd. and the Indian Space Research Organization. It hosts theIndian Institute of Science and state-owned firms such as Bharat Earth Movers Ltd., the biggest maker of excavators.

The city's population is rising at a faster-than-expected 3.2 percent a year and may reach 10 million by 2021, according to the Bangalore Development Authority, as the city's engineers andscientists help attract investments from companies such as Intel Corp. and General Electric Co. The city's population was 5.68million in the 2001 census.

Bangalore's success in attracting companies has been marred by the failure of the authorities to improve the infrastructureto cope with the growth in the population, leading companies tolook elsewhere.

Opting Out

Microsoft Corp. in 2004 selected Hyderabad, the capital of neighboring Andhra Pradesh state, for its largest non-U.S.software center. Finland's Nokia Oyj, the world's largest makerof mobile phones, chose Chennai, about 300 kilometers (186 miles) away in Tamil Nadu state, for its first Indian handset-manufacturing plant.

``Significant growth has happened outside of Bangalore,''Sudip Nandy, Chief Strategy Officer of Wipro, said in an interview on Feb. 1. ``I would say at least a part of that is at the cost of Bangalore.''

Construction of the city's new international airport beganin July after a delay of three years because of prolonged negotiations with the federal and state governments. The newairport won't be ready until 2008.

Kumaraswamy's administration must build airports in places such as Mysore, Karnataka's second-largest city, and Bellary, 264 kilometers from Bangalore, to bolster economic growth, G.R.Gopinath, Managing Director of Air Deccan, said in an interview.Small airports would cost as little as 50 million rupees, he said.

Hinterland

``Connectivity is the key to growth,'' Gopinath said Feb. 1.Air Deccan, based in Bangalore, is India's first low-cost airline.``I do not think today industry and business and investments will go to regional areas or hinterland'' without air connections, hesaid.

The poor state of infrastructure led companies in September to threaten a boycott of the annual, state-sponsored technology fair in Bangalore. The protest ended after Singh promised to accelerate work on 10 road projects and set up a committee to review the city's infrastructure plans every week.

Gowda, who resigned as national President of the JD(S)protesting the new alliance formed by his son, said on Oct. 26 that the state government can't focus on improving infrastructurein Bangalore at the expense of farming, which supports 65 percentof the population.

``That doesn't mean we're anti-information technology, anti-manufacturing,'' Gowda, who has had an acrimonious relationship with Bangalore's software companies, told reporters at that time.

Gowda's feuds, especially with Infosys, haven't helped, said the company's Chief Financial Officer Mohandas Pai.

`Low Morale'

``Industry morale is low now,'' Pai said in an e-mail to Bloomberg News on Feb. 1. ``Employment is growing faster in the other cities because of the industry bashing that went on in Bangalore and also because of the infrastructure.''

Last month, Pai told reporters the company's plan to expand in Karnataka and create more jobs was being obstructed by Singh'sadministration.

``Over the last four years, despite repeated applications,we still have not got land to expand in Bangalore,'' Pai said at a press conference on Jan. 11. ``We have to go elsewhere.''

The new government needs to demonstrate ``more sympathy andunderstanding of industry needs, a more conducive atmosphere,''Pai said in the e-mail this week.

Kumaraswamy's first task would be to bolster support from the Bharatiya Janata Party, which controls 79 seats in the Legislative Assembly and is the single largest party in the 224-member house. Singh's Congress has 64 seats. The JD(S), with 59 elected lawmakers, is the weakest of the three major parties.

Kumaraswamy is required to demonstrate he has the support of a majority of the legislators by Feb. 10.