System error in India's Silicon
Valley By Sudha Ramachandran
BANGALORE - The
transformation from a laid-back "pensioners' 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, Bangalore has
a vast technically skilled manpower pool. This, along with its
greenery and pleasant climate, is what attracted domestic
and foreign information-technology (IT) companies. While the
influx began in the 1980s, it gathered momentum in the
1990s. Today, Bangalore is home to more than 250 high-tech
companies, from Indian IT top guns Infosys and Wipro,
which are headquartered here, to global giants Intel,
IBM, Cisco, Oracle, SAP, Texas Instruments and Lucent,
among others. The United Nations Human Development
Report has ranked Bangalore fourth as a global hub of
technological innovation.
But
Bangalore's success is proving to be its undoing as well. A
booming job market has resulted in massive population growth -
a 42% increase from 1981 to 2001. The city is bursting
at its seams. Its infrastructure is under tremendous
strain. Power and water shortages are frequent. Poor
public transport has led to a massive increase in the
number of private vehicles on its narrow and potholed
roads, resulting in maddening traffic snarls.
For the IT industry, endless traffic jams and
power shortages mean delays and lost productivity.
Recently, in a rather belated response to the complaints
of Bangalore's IT czars on the city's roads, the central
government announced a four-lane superhighway from
Bangalore to Electronic City, where several IT companies
are located. A third of the costs are to be borne by IT
companies. While this is a step in the right direction,
a lot remains to be done to address the silicon city's
infrastructure problems.
The real problem is
that local officials do not even seem to think there is
a problem. The sorry state of affairs wouldn't have
seemed as frustrating or hopeless had Karnataka state,
of which Bangalore is the capital, had a government more
responsive to the city's residents and its software
industry. The priority accorded to IT by the new
government can be gauged from the fact that five months
into power, the state doesn't have an IT minister. Not
surprisingly, the IT industry, which has been
complaining for a while about the infrastructure
bottlenecks and an unresponsive government, has now
simply given up on Bangalore.
In July, Vivek Paul,
chief executive officer and vice chairman of
Wipro, said high wages and attrition rates along with
poor infrastructure made it difficult for the company to
expand in Bangalore. Wipro's discontent made headlines.
Within days, delegations from other Indian states were
making a beeline for Bangalore to persuade Wipro and
others to shift base.
First off the block
was neighboring Tamil Nadu. In less than a fortnight,
Vivek Harinarayan, the state's IT secretary, was in
Bangalore to meet Wipro chairman Azim Premji. Drawing attention
to Chennai's plus points as an investment destination
for IT - high connectivity, land availability and a
low attrition rate of 7-13% (compared with 50-100% in
cities such as Bangalore, Mumbai and Hyderabad) - Harinarayan
assured Premji of a consistent IT policy. Wipro is now
expanding its Chennai and Coimbatore facilities by 85
and 25 acres (34 and 10 hectares) respectively.
On August 16, the IT minister of the eastern
state of West Bengal, Manab Mukherjee, submitted a
proposal to Infosys mentor Narayana Murthy, offering
his state's Salt Lake City as an IT hub. The following
day, a delegation from Madhya Pradesh led by its then
chief minister, Uma Bharti, was in Bangalore promoting
Bhopal and Indore as potential centers of IT investment.
IT industry watchers say that where Tamil
Nadu scores over Karnataka is that it has a government that
is not hostile to IT. Tamil Nadu was the first state
in the country to come out with an IT policy, in 2002.
It has set up IT parks and has made space
available for companies to expand. It is also one
of the best-connected states in the country, with
an optic-fiber network of more than 14,000 kilometers. Infrastructure
facilities in its capital, Chennai, are among the best
in India.
When Dun & Bradstreet Corp
(D&B), software firm Cognizant's parent company,
decided to set up a development center in India, it
carried out a "threadbare evaluation of different
low-cost locations across the globe and zeroed in on
Chennai", says R Chandrasekaran, Cognizant managing
director. While India's IT sector has grown at 28%
annually, Chennai's has grown at 60%, thanks to the
proactive strategy of the Electronic Corp of
Tamil Nadu (Elcot), the state government's nodal agency
promoting IT investments in Chennai.
A
surprise entry into the race for IT investment is Kolkata,
better known for its urban squalor and trade unionism.
But today, Kolkata's intellectual talent and low costs
are drawing in the giants - Wipro is building a
16-hectare campus outside the city, second only to its
Bangalore headquarters, while IBM's expansion plans in
Kolkata will see this center emerge as the second-largest
facility in India.
In West Bengal,
the government - a communist one - has played a crucial
role in Kolkata's transformation from a "dying city" to
a high-tech hub. It has sought to lure investment
by offering generous incentives to investors, including
low electricity tariffs and by declaring IT an
essential industry. It has even called in consultancy
firm McKinsey to help draw investment. And its
infrastructure is improving rapidly. Notorious for power cuts until the
late 1980s, West Bengal is today one of the few
power-surplus states in the country.
West
Bengal's revenue from the IT industry is no doubt small.
In 2003-04, the state revenue from IT exports accounted
for 2.2% of India's total earnings from IT. The leader -
Karnataka - on the other hand accounts for a third of
India's IT exports. But West Bengal seems geared to
close the gap.
Pune, in the western state of
Maharashtra, is another city gaining from Bangalore's
fading charms. Its proximity to India's commercial and
financial capital Mumbai, its large IT skill pool,
improved infrastructure and low attrition rates have
contributed substantially to its sheen.
It
is the unexpected corners of the country - the
smaller towns and cities - that are rapidly emerging as the
new magnets, especially as outsourcing centers. A
study conducted by the National Association of Software
and Service Companies (NASSCOM) with management
consultancy major KPMG says such cities as Jaipur, Pune, Mohali,
Ahmedabad, Vizag and Kochi are increasingly attracting
IT and outsourcing firms.
The
study pointed out that Jaipur, hitherto ignored by big IT
companies and outsourcing firms, is poised to emerge as
a major hub because of government initiatives and
several attractive features of the city itself. "Jaipur
retains the advantage of a small city - lower travel
time and real estate and power availability. It has
gained global visibility as the tourism hub of Rajasthan
and is trying to leverage this for IT and ITES [IT
enabled services] industry," the study said. According
to NASSCOM, about 30% of India's outsourcing revenues
($12.5 billion last year) will be headed to smaller
cities within a few years.
While the emergence
of small towns as new centers of IT and ITES is a good
thing, the possible decline of Bangalore is worrying
many. 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", Karnik said in a recent interview.
IT officials in Bangalore are not
worried, however. They see little reason for panic and
cite statistics to prove their point. Bangalore remains
at the top with software exports totaling $4.2
billion last year, registering a 46% growth rate (the
national average was 28%). There were 168 new investments
the previous year, 110 of them foreign direct
investments (FDIs). This year, 62 companies have
invested in Bangalore, 50 of which are FDIs.
IT
officials refuse to admit that Bangalore's crumbling
infrastructure is scaring off investment and expansion.
B V Naidu, director of Software Technology Parks of
India, for instance, dismisses the seriousness of
Bangalore's crumbling infrastructure and describes it as
"a temporary pressure on infrastructure".
Officials
in Bangalore see the expansion of companies
such as Wipro, Infosys and IBM outside Bangalore
as a corporate strategy, driven by high competition and
costs in Bangalore. Indian IT companies, they argue, are
unable to match the high salaries offered by
multinational giants and are thus expanding by branching
out in cheaper locations.
The Karnataka
government is convinced the expansion plans of IT
companies outside Bangalore won't have any adverse
effects on the city's status as the leading
international IT hub. But the industry thinks
differently. It sees this as the beginning of a
hemorrhage. While other cities are drawing in investment
because of their governments, it seems to them that
Bangalore's IT industry will have to survive in spite of
it.
Sudha Ramachandran is an
independent researcher/writer based in Bangalore, India.
She has a doctoral degree from the School of
International Studies, Jawaharlal Nehru University, in
New Delhi. Her areas of interest include terrorism,
conflict zones and gender and conflict. Formerly an
assistant editor at the Deccan Herald (Bangalore), she now
teaches at the Asian College of Journalism, Chennai.
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