Monday, April 25, 2005
The Economist on Bangalore
The current issue of the Economist has a special report on the IT and outsourcing industry, with a special focus on Bangalore. Not that any of it comes as a surprise to those of us who know the Bangalore scene intimately, but the Economist makes an important point to begin with -- Bangalore is already choking on its own success; but the boom has barely begun.
The new administration, under its chief minister, Dharam Singh, a portly grass-roots politician who prides himself on his common touch, forswore the “urban bias” of its predecessor. The city soon felt the pain of the government's inattention. “As companies we have scaled up,” says Bob Hoekstra, boss of a big Bangalore software centre for Philips, a Dutch consumer-electronics giant. “But the government has scaled down.”
The government showed its disdain for the IT billionaires by allowing the withering of the “Bangalore Agenda Task Force”. This was an initiative led, and largely financed, by Nandan Nilekani, chief executive of Infosys, to improve governance and infrastructure in Bangalore through partnership with the private sector. Worse still, from the IT industry's point of view, the government decided to apply an “entry tax” of 13.5% on goods brought into the state—a big burden on firms relying on imported computers. For those perennially pessimistic about India, all this was just the latest proof that its democratic structure will always end up stifling its economic prospects.
Few in the IT industry have much good to say about the new government. At least, however, it is pretending to be friendly to business. It has dropped the entry tax for exporting firms and is even talking of setting up a committee with the private sector, along the lines of Mr Nilekani's defunct task-force. All its talk of expansion will inevitably be bogged down in bureaucratic delay, and the building will itself cause disruption. Things will get worse before they get better.
It is in this context that Bangalore's troubles have to be seen: as the acute growing pains of a still-infant industry. It is a worry not because the difficulties are insuperable, but because some can be solved only by the government. India's IT industry has thrived in part because, unlike most other sectors of the economy, it has largely kept the government out of its business. That period is coming to an end. Neglect, the industry is learning, is not always benign.
The new administration, under its chief minister, Dharam Singh, a portly grass-roots politician who prides himself on his common touch, forswore the “urban bias” of its predecessor. The city soon felt the pain of the government's inattention. “As companies we have scaled up,” says Bob Hoekstra, boss of a big Bangalore software centre for Philips, a Dutch consumer-electronics giant. “But the government has scaled down.”
The government showed its disdain for the IT billionaires by allowing the withering of the “Bangalore Agenda Task Force”. This was an initiative led, and largely financed, by Nandan Nilekani, chief executive of Infosys, to improve governance and infrastructure in Bangalore through partnership with the private sector. Worse still, from the IT industry's point of view, the government decided to apply an “entry tax” of 13.5% on goods brought into the state—a big burden on firms relying on imported computers. For those perennially pessimistic about India, all this was just the latest proof that its democratic structure will always end up stifling its economic prospects.
Few in the IT industry have much good to say about the new government. At least, however, it is pretending to be friendly to business. It has dropped the entry tax for exporting firms and is even talking of setting up a committee with the private sector, along the lines of Mr Nilekani's defunct task-force. All its talk of expansion will inevitably be bogged down in bureaucratic delay, and the building will itself cause disruption. Things will get worse before they get better.
It is in this context that Bangalore's troubles have to be seen: as the acute growing pains of a still-infant industry. It is a worry not because the difficulties are insuperable, but because some can be solved only by the government. India's IT industry has thrived in part because, unlike most other sectors of the economy, it has largely kept the government out of its business. That period is coming to an end. Neglect, the industry is learning, is not always benign.
