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Is the outsourcing boom backfiring on Bangalore?
Other Indian regions eager to get a piece of the pie...

By Reuters

Published: Tuesday 08 November 2005

India's high-tech capital could be set to choke on its own growth, as other regions in the country seek to woo outsourcing investors.

An infrastructure crunch has been threatening Bangalore's prospects. The problem accelerated in October when an influential politician raised doubts about the government's industry support, which comes in the form of cheap land and subsidies.

At Bangalore's annual industry conference, Indian regions ranging from the desert state of Rajasthan to the beach haven of Goa were wooing investors, not tourists.

V Ravichandar, a business consultant and former member of a government infrastructure panel, said: "Suddenly with all the noise, the investor says: 'I am going to check out the other cities.' You can't rest on old glory."

A talented pool of workers, especially for microchip design, is still a big advantage for Bangalore, a city of 6.5 million people and more than 1,500 technology companies.

But experts say lower-end software coding or back-office work could easily go to other Indian cities.

The world's largest staffing group, Swiss Adecco, has seen the shift. Ajit Isaac, head of the staffing company's Indian arm, Adecco PeopleOne, said he knew of three investors in the past quarter that chose cities other than Bangalore.

Bangalore's woes could hurt the country of India as a whole, he added.

Isaac said: "It is a showpiece. Once you let it go down, the magnet of attracting investment could become weaker."

China, Russia and the Philippines are important rivals for India in attracting technology and back-office investors.

Although tech giants such as Intel and Motorola have put Bangalore on the world technology map, a host of rival Indian cities are lining up their own incentives, such as cheaper land and subsidies.

The state in which Bangalore is located, Karnataka, kicked off the BangaloreIT.in conference last week with "Beyond Bangalore" as one of its themes. Compounding the flagship city's troubles, the aim of the Karnataka conference was to position Bangalore as a gateway to other states and cities.

Things had looked up for Bangalore in July, when construction started for a $313m international airport due for completion in 2008. But a spat last month between NR Narayana Murthy, chairman of Infosys Technologies, and former prime minister HD Deve Gowda, resulted in a jolt to investor mood.

Murthy called for "people's councils" in which citizen groups would work with officials to boost civic amenities in Bangalore. That angered Gowda, whose party shares power in the local coalition and who has been critical of the IT industry because he said its expansion hurts agriculture.

Inaugurating the BangaloreIT.in conference, Gowda said he favoured the IT industry but called for jobs for farmers who would lose their land to help urban growth.

The political leader had earlier questioned the financial viability of a $900m Bangalore metro rail project that has awaited approval from the federal cabinet.

A jobs-for-land deal involving farmers would be difficult to implement for the Bangalore IT firms that account for one-third of India's $17.2bn software industry.

Fluency in the English language, a graduate education and merit-based rewards are considered vital by industry officials.

Ravichandar said: "The recent bashing of industry by the political establishment doesn't inspire confidence."

Genpact, a leading back-office company spun off by General Electric, and Progeon, a subsidiary of Nasdaq-listed Infosys, are already in Rajasthan's capital, Jaipur.

Even small towns, such as the textile centre of Coimbatore, are attracting big companies like Cognizant Technology. Wipro Technologies has branched out to communist-ruled Kolkata (Calcutta) and bought huge chunks of land near Delhi.

Bangalore's big rival, Hyderabad, scored a big win last month when Wipro, India's third-largest software exporter, signed an agreement with the state of Andhra Pradesh to acquire 100 acres of land in the city.

K Ratna Prabha, information technology secretary of Andhra Pradesh, said: "It is not as if people are running to Hyderabad. But businessmen do weigh their pros and cons. We have been able to address all issues including infrastructure. We are an ideal investment destination."