How's business in India? Watch Bangalore

Long known as India’s software hub and a magnet for information technology (IT) jobs, Bangalore is facing challenges as other Indian cities compete for IT investment and the nation’s economy struggles with slowdown and graft.

Global consulting company Accenture recently announced a major expansion in India, with about 8,000 jobs going to Pune, a city with an emerging IT economy close to India’s financial hub Mumbai, according to the Economic Times.

It seems that Bangalore's branding as India's Silicon Valley – a misnomer given that the city sits on a plateau – could be threatened by other cities, such as Pune and Hyderabad, which has its own brand nickname: “Cyberabad.” 

Assessing the challenge to Bangalore posed by Hyderabad, Rakesh Kumar Srivastava of New Delhi-based National Council of Applied Economic Research says that the regional government in Andhra Pradesh, of which Hyderabad is the regional capital, has worked to grow the city as an IT destination.  

“Initiatives and strategies for infrastructural development, human resource development, and policy framework to support and attract investments have helped [Hyderabad] become an attractive investment destination for developers and occupiers as well,” he says.

Amid India’s lowest economic growth in almost a decade, the challenges faced by those doing business in India are compounded by political and legal risk, despite the efforts of officials to attract new business to Andhra Pradesh.

Citing challenges such as unclear laws and heavy-handed bureaucracy, Amit Midha, president of Asia Pacific and Japan for Dell told Reuters last week that India is a tough place to do business.

“New decision makers come and they don't honor the contract previously signed,” he said.

The often prickly relationship between officialdom and business in India affects not only big-name foreign investors such as Dell, but also Indian businesses based in Bangalore. Local authorities are trying to take over the running of Electronics City, a 440-acre IT industrial park about a 45-minute drive from downtown Bangalore, apparently to boost Bangalore's tax revenues, according to local press.

That move looks likely to be resisted by businesses based in the district, with the Electronics City CEO N.S. Rama reportedly expressing reservations to India's central government about the Bangalore local authorities' plans.

"We must not bring down Electronic City to the level of infrastructure that is in Bangalore," said Mohandas Pai of Manipal Global Education Services, based in Electronics City.

Communal tensions could compound the challenges facing Bangalore. Last week, thousands of Indians from the country’s northeast fled the city fearing  violence following ethnic and sectarian fighting in Assam state in the northeast.

That said, Hyderabad has had recent political turmoil of its own, with the Telangana movement, which demands statehood for the Andhra Pradesh region, staging recent protests that “caused much discomfort to IT businesses in Hyderabad,” according to Mr. Srivastava.

Not everyone is worried about competing cities

Despite the challenges faced by the IT sector in Bangalore and elsewhere, some of Bangalore’s IT entrepreneurs are sanguine about their city’s prospects.

Salil Godika is one of a group of still-young veterans of India’s IT giants such as Wipro and Infosys who broke away to set up Happiest Minds Technologies in Bangalore one year ago.

The company is opening a second location in Bangalore and already employs more than 500 people at its headquarters in Electronics City. “Other cities are coming up, it is a good sign for India,” he says. “It is not an either/or thing between Bangalore and elsewhere.”

Electronic City hosts schools specializing in fields important to the companies nearby. A few hundred yards down a tree-lined street from household names such as Siemens and Infosys is the International Institute of Information Technology-Bangalore.

Yes, the city now has competition from cities such as Pune, says Amit Paul Babu, a placement officer who helps recent graduates find employment in Bangalore's IT sector. But, “Bangalore still has a major human resources advantage,” he says adding that India’s economic slowdown has not affected India's IT sector.  

The recent electricity failure in northern India, which attracted international attention when it left some 600 million people without power for several days, also didn’t really disrupt the industry, he says.

“People have backup, and there wasn’t a huge business downturn,” says Mr. Babu. Still, he concedes that the outage adversely affected India's image, something that could in turn undermine Bangalore's status as a globally known IT hub.

Image problem for Bangalore

There are other signs of the city's stressed infrastructure, which is creating more problems for the city’s image and busienss environment, says Manoj Patil, an engineer from Bangalore.

The city has plans to complete the new overground train network in an effort to reduce Bangalore’s notorious traffic congestion.  Currently it serves less than half the stations on the projected route.

“They have to go for it,” says Mr. Patil.

A half-mile from the end of the line at Baiyappanahali station is Gopalan mall, one of many multistory shopping hubs across the city of 8 million.

Inside, Sridhar, a recent business graduate, manages a stall selling CDs and books by Sadhguru, an Indian mystic. “We don’t notice the economic slowdown on a day-to-day level, not yet, anyway,” he says.

Bangalore’s problems, he believes, are those of India writ-large, where corruption and mismanagement scandals flare up regularly.

Last week, for example, India’s national auditor said the government lost billions of dollars after selling coalfields to private companies without an auction. Some estimates put the loss to state coffers at $210 billion.

“Even the educated people here, the ones with jobs and knowledge, they do not think about anything but themselves,” says Sridhar. “Go outside and watch some people crossing the road. They don’t care about the rules, or the best thing to do for everyone. It is the same with our country in general,” he says.