India's Silicon Valley eyes political change

India's Silicon Valley eyes political change

By Alistair Scrutton

BANGALORE, India (Reuters) - It's been a frustrating time for many businesses in India's IT hub of Bangalore. Endless traffic jams, sporadic power, a chaotic airport and many politicians who just couldn't give a damn.

For four years, Karnataka state, home to India's "silicon valley", was ruled by a chaotic coalition with a regional party. With Janata Dal (S)'s support base among farmers, politicians were criticized for ignoring Bangalore's IT "elites".

The result - more decrepit public transport, four hour commutes, packed roads and blackouts that have taken some glean off this city as it faces increasing competition from other cities such as Shanghai and Manila to attract foreign investment.

Now many executives hope state elections, ending on May 22, may offer hope for the world's "back office", accounting for a third of India's $41 billion software exports, by bringing in politicians to address grievances of businesses.

It is not just about political pie-in-the-sky promises.

Karnataka will hold the first major election under a new constituency map. The first new map in decades, it gives more political weight to urban India and its business workers and could weaken India's traditionally pro-rural politicians as the country prepares for general elections within the year.

"In the last four to five years, a lot was squandered away in Bangalore. What has happened, happened in spite of," said Ashok Kheny, an Indian businessman who has unsuccessfully battled for years to finish a $700 million highway and township project.

The last election four years ago was seen as a rejection of former chief minister S.M. Krishna's pro-urban policies in favor of farmers. Krishna, who promised to convert Bangalore into another Singapore, had helped propel the city into an IT hub.

A similar voter backlash happened in Andhra Pradesh in 2004, where a pro-IT party was thrown out by angry voters, increasing feelings in India that being pro-tech was not a way to win power.

As Kheny talked, aides remarked how it took ten minutes to cross the road to the upmarket hotel for the interview, such was the dense traffic and lack of road crossings.

Kheny returned to India in 1995 after 15 years in the United States to build a highway and townships that would connect Bangalore with the city of Mysore 110 km (70 miles) away. It was a landmark deal, India's first privately-funded highway.

But more than 338 lawsuits later and vocal opposition from Deve Gowda, leader of Janata Dal (S), the consortium has still finished less than 50 percent of the work. The project may now cost around $1 billion due to cost overruns.

"Often in business, perception is more important than the bottom line, and Mr. Gowda has created the perception of being anti-business in Bangalore," said Kheny, managing director of the Nandi Infrastructure Corridor Enterprise consortium.

BOOMING BANGALORE

Bangalore is still booming. Malls and offices sprout up. But the worry is that the pace of the boom is outstripping infrastructure to a degree that companies may move elsewhere.

Faced with infrastructure bottlenecks and rising real estate costs, firms like Infosys Technologies, India second-largest software services exporter, and India's top biotechnology firm Biocon -- which both have their headquarters in Bangalore -- are mulling expansion projects outside the city.

Last month, Infosys said it would invest around $120 million in a new development centre in the eastern city of Kolkata.

"Nothing has been done in the last 4-5 years and we're worried Bangalore will lose competitiveness. Companies are expanding to other places," said Raghavendra Shastry, head of Getit Infomediary Ltd, the Yellow Pages publisher in Bangalore, adding some companies were now eyeing Manila for outsourcing.

"And it's not Bangalore that will lose business, it's India."

It is the microcosm of a wider problem in Asia's third largest economy, where poor infrastructure has investors worried it will soon slow India's breakneck economic growth.

It was a sign of the times, executives say, that the three parties in the election -- Congress, the Hindu nationalist Bharatiya Janata Party (BJP), both national parties, and the JDS -- have published separate manifestos for Bangalore.

Their promises range from a new metro to cutting pollution by turning all public transport to natural gas.

"JDS has realized its mistake of ignoring Bangalore," said Subir Roy, an editor of the Business Standard in Bangalore.

HAIL THE URBAN VOTER?

Villagers no longer hold the sway they used to under India's constituent map. Previously, India's constituencies were based on a 1971 census, when India was hugely rural. The new vote is based on a 2001 census, when millions had migrated to the cities.

Bangalore has more than doubled its state assembly seats to 28, more than 10 percent of the state assembly's seats.

"Traditionally in India, the perception of being a pro urban politician was a kiss of death," said V. Ravichandar, managing director of Feedback Consulting in Bangalore, which advises multinationals across India.

"Now, for example, there isn't one qualified urban planner in the city or state government. But parties are responding to a new urban reality, and a middle class is finding their voice."

There is a lot to do. Ravichandar pointed to the new international airport in Bangalore, majority held by Siemens Projects. After many delays it is due to open this year. But no new road has been built to the airport. Drivers expect chaos.

"We have distracted politicians. Politicians have just taken Bangalore for granted," Ravichandar said.

To make matters worse for a new operator, there are calls to allow the old state-run airport in Bangalore to run alongside the new airport, angering the operators who say their contract stipulated the old one would close.

Ravichandar said 33 different state and federal agencies were involved in a new airport road, making planning even harder.

Some fear Karnataka may yet again produce a coalition government. The last one was so chaotic it ended in presidential rule being imposed. Many businesses hope for a single party win, whether it be the Congress party or BJP.

Media reported that turnout may have been low in the three stage election -- a possible sign how India's new urban and middle classes are politically apathetic.

Still, businesses were not about to give up their city.

"I'm always optimistic," said Capt. G.R. Gopinath, Vice- Chairman of Deccan Aviation. "As the saying goes, business always succeeds if you have great inspiration and a lack of resources."

(Additional reporting by Sumeet Chatterjee; Editing by Megan Goldin)