With Hyderabad snapping at its heels, Bengaluru may lose 'IT capital' tag

The Hyderabadis started with big dreams in the 1990s. They had a mascot in Chandrababu Naidu who claimed a tech-savvy image for himself when most politicians thought the mouse was an animal. They had a generation of friends and relatives working in the IT industry in the US, which meant all the spinoff could possibly come to them. But the hard reality was that Bengaluru has been the numero uno city in IT and held that position with tenacity over many decades.

But, since the birth of the two Telugu states, the Hyderabadi’s cyber dream of being the nation’s Silicon Valley appears to have greater chances of coming true. Software exports from Telangana have been growing at much higher rates than Bengaluru and it may well be a matter of time before Hyderabad catches up. The exports crossed a major milestone of ₹1 lakh crore for the 2018-19 fiscal, clocking an impressive 17% growth year-on-year. This is almost double the national average of 9 per cent.

Hyderabad is the main IT hub of Telangana, accounting for nearly 99 per cent of the total exports. Even before the bifurcation in 2014, Hyderabad was the major destination for global IT companies in the united Andhra Pradesh as well.

Since the formation of the new state, the IT sector has been putting up a consistently stellar performance with exports almost doubling in five years, from ₹57,258 crore in 2013-14 to ₹1,09,219 crore in 2018-19. In 2017-18, the exports stood at ₹93,442 crore.

Registering a 17 per cent growth is all the more significant in the backdrop of the Indian IT industry body NASSCOM predicting a national average growth of 7-9 per cent in FY19 whereas Electronics and Computer Software Export Promotion Council (ESC), a body under the Department of Commerce, had said in January this year that the IT and ITeS will grow around 8-10 per cent in India.

In contrast, Karnataka recorded a compounded annual growth rate of 8.66 per cent in the IT and ITeS exports between 2013 and 2018 against a national average of 10.32 per cent, according to the Ministry of Electronics and Information Technology.

Employment in Telangana’s IT sector also grew by 14.24 per cent year-on-year to reach 5.43 lakh in 2018-19 as against 4.75 lakh in 2017-18. Telangana now stands second in the country, after Bengaluru, in terms of software exports.

Robust policy environment

Industry experts attribute the success to the Telangana government’s aggressive push to develop the IT sector in the state.

“The primary reason for the phenomenal growth of the IT industry here is that the state government has put in place pro-active policies and created a robust investment climate to attract big players into the city,” the state IT Secretary Jayesh Ranjan told The Federal.

Telangana, which started with the base IT exports of ₹57,258 crore in 2013-14, has witnessed a quantum jump in the past five years with the numbers almost doubling to ₹1,09,219 crore in 2018-19. “The state has become the frontrunner in the sector, registering growth well above the national average. Telangana also witnessed growth in IT employment to 5,43,033 jobs during 2018-19 from 4,75,308 jobs recorded during 2017-18, indicating a growth of 14.2 per cent,” the IT secretary said.

Hyderabad is now home to global giants including Microsoft, Google, Facebook and Amazon.

What started out as a single multi-storied building named Cyber towers in 1998 has now grown to a sprawling 250 acre division named HITEC city.

In fact, Microsoft and Qualcomm have their biggest campuses outside the US located in Hyderabad. And, Google, Intel, and Apple recently opened their development centers in the city.

Rise and fall of Silicon city

Silicon city Bengaluru emerged as an IT hub in the early 1990s. The engineering talent pool, clubbed with the city’s infrastructure and state policies, ushered the IT boom. Indian companies like Infosys, Wipro and TCS along with multinational giants like IBM, Texas Instrument and HP among others stared operations in Bengaluru. It gradually encouraged IT enabled services (ITeS) to set up shop, creating thousands of jobs in the process; and encouraging many companies to move their backend operations to Bengaluru.

Although Bengaluru still tops in IT exports, the city started to lose out to emerging cities in the neighbouring states, mainly because of its crumbling infrastructure. Poor traffic management, connectivity issues and rising drinking water problems continue to fester. As the other cities started to woo IT companies with cheaper land and better infrastructure, the companies are showing an inclination to move out of Bengaluru.

Hyderabad’s USP

The spotlight began to shift slowly from Bengaluru to Hyderabad in 1998 when Microsoft chose the city of ‘nawabs’ and pearls to set up its India Development Centre, the largest R&D centre outside its Redmond headquarters in the US. The achievement was largely attributed to the personal initiative of then Chief Minister of united Andhra Pradesh N Chandrababu Naidu and his famous one-on-one meeting with Bill Gates. The development had a catalytic effect with the IT industry beginning to look at Hyderabad as a potential investment destination.

With Bengaluru getting saturated and groaning under infrastructural woes, particularly its notorious traffic jams, IT companies started looking at alternative destinations. Hyderabad fits the bill on various counts: air connectivity, availability of a large pool of engineering talent and aggressive policies of the successive governments to attract the industry.

The pro-active IT policies, cheaper land rates and hassle-free clearances helped the city emerge as a thriving IT destination by the mid-2000s. Surprisingly, the prolonged agitation for a separate Telangana state did not impact the flow of IT investments into the city.

The city has seen an upward surge with a number of domestic and multinational companies establishing their headquarters. The boom in the software industry has even led to the growth of Hyderabad’s very own IT parks such as HITEC City and Mindspace Cyberabad.

Prophets of doom

At the height of the Telangana statehood movement, there were sceptical voices over the future of IT industry in Hyderabad. Doubts were raised whether the city could sustain the growth in software industry if Andhra Pradesh was divided. There was a time, not long ago, when Bengaluru was the undisputed investment choice for international technology companies and was widely seen as Silicon Valley of India.

“After achieving the statehood goal, we had set a target of doubling the IT exports in five years. We have almost achieved it now,” the working president of the Telangana Rashtra Samithi (TRS) KT Rama Rao, who was the IT minister between 2014 and 2018, said.

It was considered blasphemous to name any other city as Bengaluru’s competitor. Not anymore. The scale is tilting towards Hyderabad now, thanks to government policies and infrastructural advantage. Global tech leaders are now looking at Hyderabad as an ideal destination

• KT Rama Rao, working president, TRS

“It was almost considered blasphemous to name any other Indian city as Bengaluru’s potential competitor. Not anymore. In fact, the scale is clearly tilting towards Hyderabad now. The reasons are not far to seek. A set of pro-active policies of the present government, clear infrastructural advantage and an ideal eco-system to nurture innovation are a few to name. The global technology leaders are now looking at Hyderabad as an ideal destination to set up their businesses as reflected by a steady surge in investments,” he said.

Consistent growth
Over the past five years, the Telangana software export growth has been consistent, despite fluctuations and the uncertainty facing the industry.

During 2018-19, the state’s IT exports from STPI (Software Technology Parks of India) were ₹57,154 crore while the total exports from SEZs (Special Economic Zones) stood at ₹52,065 crore. And, the total investments into the sector during the year stood at ₹23,054 crore.

Meanwhile, the Electronics and Computer Software Export Promotion Council (ESC) has projected all India exports growth at 8-10 per cent for the year 2018-19.

“The key factor for Telangana’s growth is that the existing companies have expanded their operations aggressively. For instance, those companies which had just 400 people have taken their headcount to almost 1,000 in the past one year. And, we have attracted many new companies,” Jayesh Ranjan said.

“The existing companies have realised that the value proposition that Hyderabad offers to them is very strong. Quality infrastructure, low cost of operations, talent availability and a high number of employees willing to relocate to Hyderabad, have worked in favour of Hyderabad,” he said.

The two key institutions, Telangana Academy for Skill and Knowledge (TASK) and T-Hub (an incubator for start-ups) have been accessible to corporates all the time whenever organisations were required to go for hiring or corporate skilling and training programmes. The state’s IT policy has helped attract not only the general IT companies but also very niche organisations operating in artificial intelligence, internet of things, blockchain and data analysis.

Having dedicated sub-sector IT policies in Telangana is seen as a big advantage for the industry to set up their operations here. “Hyderabad is often compared to Bengaluru in the IT sector. Bengaluru is struggling because of many reasons such as inadequate infrastructure, high cost of real estate and operations, unreliable talent availability and high attrition rate. Earlier, organisations were looking at Hyderabad, Chennai and Gurugram as alternatives to Bengaluru. But now, having seen the advantages of operating in Hyderabad, the city has become an obvious and preferred choice and there is no comparison to Hyderabad anymore,” the official said.

New projects such as the upcoming IT Park in Rajendranagar on the city outskirts and ‘Image Towers’ for animation and gaming would also boost the growth in the years ahead. The government is also creating an electronic cluster on the city outskirts.

Along with IT policy, the state government had, in April, 2016, unveiled four other sub-policies on electronics, rural technology centres, innovation and animation and gaming.

Chances of revival for Bengaluru

Experts, however, say that it may not be prudent to compare the two states on revenue-to-revenue basis. “Both are progressive states and attract investments through their competing policy decisions. Bengaluru is fast catching up on product engineering and R&D, while Hyderabad is growing in technology and operations. Also, while we see 6-7 IT clusters within Bengaluru, much is concentrated towards Cyberabad in Telangana,” said KS Viswanathan, VP (industry initiatives), NASSCOM.

Priyank Kharge, former IT minister of Karnataka says, considering that Bengaluru is the largest IT exporter in the country, there is some stability and consistent growth in the sector. Besides, Bengaluru’s IT sector has its own strengths, he says. “When we compare the number of jobs created, space sold for IT companies and amount of investments attracted, we are on the higher side—perhaps it would be multi-fold. Again, in the start-up segment, we are ten times bigger than them,” he said.

Admitting that traffic is an issue when it comes to infrastructure, he says similar problems will be seen in any other city. “Even Hyderabad is filled with potholes and people struggle to negotiate their way during heavy rains. We are making policy decision to ease out these problems and hence we are expanding the metro and sub-urban rail connectivity in the city. It will take another two to three years for the city reap the benefit of ongoing infrastructure project,” he adds.