Move over Bangalore

Move over Bangalore
Asia Times

BANGALORE - Several prestigious high-tech projects have gone Hyderabad's way in recent months, prompting speculation that Bangalore's days as India's leading IT city might be numbered. But while Hyderabad may be gaining ground, it still has much catching up to do. Bangalore, which enjoys the advantage of a solid headstart, is still way ahead in the race.

In February, Hyderabad pipped Bangalore at the post to grab chip-maker AMD and SemIndia's prestigious Fab City project. The two cities as well as another southern Indian city, Chennai, were vying for the US$3 billion project, which will host India's first major silicon chip manufacturing facility. The significance of the Fab (factory fabrication model) City project can be gauged from the fact that while total foreign direct investment flow into India in 2004-05 was $3.75 billion and is expected to rise to $7 billion this year, the Fab City project alone is worth $3 billion.

The project is expected to act as the catalyst that puts India on the global chip manufacturing map. It has the potential of creating tens, maybe hundreds of thousands of jobs when fully operational. That Hyderabad was chosen over IT frontrunner Bangalore for such a high profile project came as a shock and was a huge slap in the latter's face.

Even as Bangalore was licking its wounds, it suffered another setback. Hyderabad became the only city in India besides New Delhi visited by President George W. Bush during his three-day trip to India in early March. Tens of thousands might have protested Bush's foreign policies in Hyderabad, but the IT industry saw the presidential presence as a huge vote of confidence in the city. Hyderabad became the only city in India other than New Delhi to host two American presidents – Bill Clinton stopped by in March 2000.

Hyderabad's IT industry is hoping that the Bush visit will trigger another wave of investment, as happened following the Clinton visit six years ago, which apparently had the long-term effect of improving Hyderabad's ratings as a destination for IT investment. Adding icing to the cake, Bush announced the opening of an American consulate in Hyderabad, the fifth in India. Bangalore was apparently considered, but Hyderabad clinched the deal.

Hyderabad is India's fifth largest city and ranks second in the hierarchy of IT hubs in the country. Aggressive promotion and massive development of digital infrastructure along with the setting up of numerous IT campuses in and around the city has resulted in the transformation of Hyderabad to Cyberabad. Oracle, Dell, Infosys, Microsoft, Wipro, GE, iGate, IBM, Satyam, Tata Consultancy Services, Amazon and Google have all established centers in the city.

Energetic engagment with the IT industry and an active role in improving the city's infrastructure have all worked to make Hyderabad attractive to investors. This is in sharp contrast with Bangalore, where sections in the Karnataka government are not just indifferent to IT but actually hostile to it. Bangalore’s infrastructure is crumbling and political instability has denied the city's civic administration direction. Hyderabad scores over Bangalore with regard to government responsiveness, investment friendliness and infrastructure. The Andhra Pradesh government goes all out to woo investors.

It is this aggressive courting that helped Hyderabad clinch the Fab City deal. India's IT and Communications Minister Dayanidhi Maran said that while Chennai showed "lukewarm" interest in the project, Karnataka pressed hard and was a stiff competitor. But Andhra Pradesh went a step further by providing subsidies and infrastructure facilities such as water and electricity. The state government has also allotted 1,200 acres of land near Shamshabad, where Hyderabad's international airport is being built.

Hyderabad is giving Bangalore competition on other fronts too. Hyderabad's performance in IT exports is growing at a faster rate than Bangalore's. In 2004-05 the city's IT exports grew 64.5% over 2003-04, Bangalore's growth rate in 2004-05 was a mere 10%. In the current fiscal year Bangalore has registered a 30% growth in exports till December 2005, while Hyderabad has registered 61% for the same period - the highest in the country.

But Bangalore doesn't seem bothered yet. Hyderabad's export growth rate might be exceptional, but in real terms, Bangalore's software exports are still over double those of Hyderabad. "And Bangalore has managed to retain the top position in the country's software exports, despite the infrastructure hassles," says B V Naidu, director of Software Technology Parks of India (STPI), Bangalore.

Software exports from Karnataka are poised to cross the $8.5 billion mark in 2005-06, he says. Karnataka accounts for 34% of the country's total software exports, which stand at $23 billion so far this year, he adds. Naidu says India's software exports are expected to cross the $60 billion mark by 2010, and exports from Karnataka are expected to cross the $20 billion mark by then.

Bangalore does not seem overly worried about the challenge from Hyderabad. It believes that the enormous head start it had in the IT race is enough to keep it in front of the upstarts. Even Hyderabad admits that Bangalore is way ahead. Hyderabad is about where Bangalore was in the early-to-mid 1990s, says A K Menon, the CEO of Options, an executive recruitment company in Hyderabad. "Hyderabad is projecting itself as another Bangalore in the years to come," he says - a point Bangalore needs to take note of.

As of now, Bangalore remains the favorite destination for investment not just in IT but in biotech as well. According to Karnataka government officials, during the first four months of the current fiscal year, 64 new firms opened offices in Bangalore, including 43 with foreign equity, which is roughly about four new companies registering every week. Out of the total of 1,584 IT companies operating from Bangalore, 512 were multinationals, 66 of them Global Fortune 500 companies. (By comparison Hyderabad has 127 foreign equity units although this is expected to increase to 170 this year.)

Besides, analysts believe that Bangalore's security environment - the terrorist attack at the Indian Institute of Science in December 2005, notwithstanding - is far better than that in Hyderabad. The threat posed by Islamist militants and left-wing insurgents in Hyderabad is far greater than in Bangalore. Hyderabad has witnessed several terrorist attacks over the past decade, including a suicide bombing last year. It is also very susceptible to communal violence. But Hyderabadis discount the danger. The Americans would not have chosen Hyderabad for their consulate if it was that unsafe, they point out.

The IT industry in Bangalore is more concerned about meeting the shortfall in manpower to support software and allied activities in Karnataka. Of the 900,000 IT professionals in India, a third work in Karnataka. "India will require 2.5 million qualified professionals, and Karnataka alone will require one million," Naidu says, pointing out that by 2010 there will be a shortfall of at least half a million. The available manpower is not considered up to the mark. "Only 50% of the professionals in India are considered to be usable by the IT industry," he says.

Bangalore might leave the job of drawing in investment to the magic of "Brand Bangalore". Hyderabad doesn't have the luxury - yet - of resting on its laurels. It has to try harder.