Endowed Entity

Ranked #9 in the Nasscom report on the ‘ITeS Supernine’, the Garden City has it all. Bangalore, the fifth most populous
city in India, is also the fourth global hub of technological innovation
according to the United Nation’s Human Development Report 2000. It is just
behind San Francisco and Austin in the US and the Taiwanese capital, Taipei.
This puts Bangalore ahead of many others in US, Europe, Japan, China and
South-East Asia.

The city’s greatest assets are its clement weather and cosmopolitan
outlook. Some other features that make the city an attractive business
destination are the availability of professional talent, a sizable expatriate
population and international airport.

The city also boasts of renowned hospitals, good hotels and restaurants, five
golf courses and a number of tourist spots.

Policy support

In 1997, Karnataka became the first state to come out with a specific policy
for promoting information technology (IT) industry. Now, the state has evolved
several policies aimed at benefiting IT &IT-enabled services (ITeS). It has
also extended exemptions under the Industrial Disputes Act, 1947 and the
Karnataka Shop and Commercial Establishments Act, 1996.

One of the latest initiatives is the Mahithi-Millennium policy, under which
the state has offered a variety of incentives to promote ITeS sector in the
state.

Sales tax exemption: ITeS companies, irrespective of the level of investment
and the location of the unit, are offered sales tax exemption for 10 years or
deferment for 12 years, subject to a ceiling of 200% of the value of the fixed
assets. Such exemptions are applicable to the turnover tax.

Entry tax exemption: ITeS firms don’t have to pay entry tax and purchase
tax on computer hardware, peripherals and other capital goods, including captive
power generation sets, during the implementation stage. This exemption can be
extended up to 5 years from the commencement of implementation.

Employment: The labor policy has been simplified by the state. For those who
create employment in ITeS, the policy offers incentives on the cost of land,
registration and zonal regulations. New companies employing more than 250
employees in Bangalore are eligible for these concessions.

Power tariffs: While ITeS firms are treated as industrial consumers for the
calculation of power tariffs, the upside is that ITeS units are exempt from
power cuts.

STPI: Companies registered under the Software Technology Park Scheme can
avail several of the benefits–from single-window government clearance to 100%
foreign equity, complete duty-free imports, corporate income tax holiday till
2010 and dedicated data communication links. Beside, there is a single point
facility for custom bonding and export certification.

Infrastructure

The city, dubbed the Silicon Valley of India, has emerged as one of the most
favored locations for ITeS mainly due to the proactive stance of the government
and the local industry’s recent successes.

STPI:
The Bangalore STPI has 746 approved ITES units. In fact, Bangalore
accounts for 13% of all the approved STPI units in the country.

Telecom infrastructure: With close to 900,000 fixed line subscribers, the
city has a tele-density of 15.5%.

Education: Karnataka has a strong educational infrastructure, with
thousands of schools and colleges adding to the talent pool every year. Of the
66 engineering colleges in the state, 26 are located in and around Bangalore.
The city houses the nation’s premier science school–the Indian Institute of
Science–and research-oriented public sector majors like Hindustan Aeronautics
(HAL), Bharat Heavy Electricals (BHEL), ITI and Indian Space Research
Organization (ISRO).

Physical infrastructure: With infrastructure bottlenecks abound, the
city needs much to be desired. Inadequate roads, power shortage and rising
pollution is among the topmost worries. The city’s public transport
infrastructure is too thinly spread. It’s 840-km road support 1.31 million
vehicles, compared to Delhi’s 26,000-km network that supports 3.61 million
vehicles. Though it has to be noted that in Bangalore, almost three out of every
four vehicles are two-wheelers.

Power: Industries have to cope with frequent power cuts. Cuts at
industrial installations average 4 hours a day, while those at residential areas
average about 2 hours.

Real estate: The real estate market in Bangalore, which has
traditionally been driven by the IT sector, has suffered a minor setback in
recent times, with corporates adopting a wait and watch approach to expansion.
However, the growth in ITeS units has added to the rates’ buoyancy. It is also
expected to account for a sizable part of the market in the next two quarters.

Transportation: Bangalore is connected well via rail and road to
Chennai, the nearest metro. It is also connected with all major Indian cities by
air transport. The Bangalore airport handles an estimated 45 flights a day,
though it is much smaller than those at Delhi and Mumbai.

TEAM DQ

Source: The ITeS Super Nine, a report by Nasscom