Toward a Flat India

Birinchi Mohapatra is a senior systems analyst with Infosys in
Bhubaneswar. Baburajan Kutty is a senior programmer with Wipro in Kochi, while
Namrata Dholakia works with TCS in Vadodara. Shrikanth Narasimhan is a customer
service executive with FirstSource in Puducherry while Kangana Rohatgi is a Team
Leader at Genpact in Jaipur. Tarun Todi is a premier reseller of HP, Lenovo,
Microsoft, Acer and Sony in Ranchi. Yogesh Bhosle sells mobile phones, laptops,
UPS and mobile accessories in Nagpur. And, Harpreet Singh Sandhu is an Epson,
Canon, Samsung, WeP and LG distributor in Ludhiana.

Till a few years back, the story of Mohapatra, Kutty, Dholakia
or Rohatgi would likely be taking place in either Bangalore or Chennai or NCR or
at least in Hyderabad or Pune. Todi, Sandhu or Bhosle would have been peddling
their wares in Nehru Place, Lamington Road or GC Avenue. But today, they
represent the face of a new and confident India; an India, where people from the
erstwhile SEC B and C cities too are coming out of their cocoons and marching
into the forefront. The PMs dream of inclusive growth finally seems to be
permeating across the length and breadth of the country.

Gone are the days when people from the hinterland migrated to
the metros to pursue their careers. Initially, the influx happened into either
Mumbai (the countrys financial hub) or Delhi (the national capital as well
the political nerve center); later, with IT coming into the mainstream, the
migration route shifted towards Bangalore or Hyderabad. This emergence of tier-2
cities, both as centers of choice for software majors as well as local markets
for all major vendors, in a way symbolizes the democratization of Indian IT.

We are not saying that people from smaller cities are no more
coming to the metros, the growing population in larger cities bear ample
testimony to this fact. However, unlike earlier, viable career options are
available now for small city residentsobviously the software majors who are
moving to tier-2 and 3 destinations are mostly hiring locally. For example, in
Bhubaneswar Infosys alone has 3,000 employees, Satyam 1,000 while TCS has
crossed 300 in a few months.

Its not just IT but in many other spheres that these tier-2
and 3 cities are finally emerging out of the shadows of the metros. Unlike the
first two generations post-independence, the new breed of the 80s and 90s seem
to be a confident group, not shying away from matching shoulder to shoulder with
their peers from the metros. Result: we now see small town people not just
making it big in public life but the cities too emerging as frontrunners in
their own rights.

This apparent democratization of Indian polity has most recently
been witnessed in cricket too, Indias favorite sport. New stars like Dhoni,
RP Singh, Yuvraj, Sreesanth and Harbhajan have emerged from places like Ranchi,
Rai Bareili, Chandigarh, Kochi, Jalandhar and the likesplaces existing as
sleepy little towns till a few years back. Corporate India too is acknowledging
the power of this new and confident India: most leading hotel chains like the
Taj and Oberois are now venturing into places like Bhubaneswar, Nagpur, Indore,
Madurai or Mangalore.

Much debate has taken place over Thomas Friedmans flat world;
business leaders and thinkers have pontificated on how geographical barriers are
breaking down between countries as economics determine the emergence of a global
marketplace in a unipolar world. Now, imagine Friedmans microcosm but in a
miniature mode; you intrapolate a flat world into a flat India where
its not just a Mumbai or a Bangalore that remain the dreams of opportunity,
but where its a more level playing field between a Vadodara, Raipur,
Vishakapatnam or even a Raipur or a Siliguri.

That India has become more flat is therefore an acknowledged
fact; that democratization of IT has also happened is an accepted truth. The two
when coupled together have ensured ITs pivotal role towards making India a
truly inclusive economy. What the other sectors could never really achieve in
the first 50 years after Independence, the IT industry has managed to do in
under ten. No wonder they call it the sunshine sector; paraphrasing Nehru in
todays context it is like IT and knowledge economy are not just the
temples, but the very altars where the foundations of the future India are being
laid upon."

Tech vendors too are acknowledging the growing clout of the
tier-2 and 3 cities. In 2006-07 Microsoft penetrated into 21 new cities, Sun
Microsystems 17 and Oracle into 23 smaller locations. IBM and SAP too went
upcountry into 20+ newer towns and cities. The Ciscos and Acers got into around
15 new loctions. Cities like Madurai, Dehra Dun, Nagpur, Bhubaneswar, Mangalore
and Ludhiana came up again and again in almost every vendors roster.

The following numbers corroborate the successes of these
upcountry forays. Take the MAIT-IMRB mid-year review of the IT industrys
performance in 2005-06. PC consumption grew 16% in the top four metros compared
to the same period last year and 24% in the next four metros. However, its
the rest of India that drove the market with 55% market share and a year-on-year
growth of 55%.

Together, the class B and C cities accounted for 70% of the PC
sales, while the sale of notebooks in the business segment in smaller towns grew
by a whopping 192% accounting for 37% of the market, up from 27% in H1/2004-05.
Sales of servers too grew 110% in class C cities and 87% in class B cities.

A Micro View

To acknowledge the growing clout of these small towns, Dataquest
undertook an endeavor to explore what makes the IT index tick in these tier-2
and 3 cities. Twenty-five cities across India were selected keeping in mind a
fair representation across the country. Mumbai, Delhi (including NCR),
Bangalore, Chennai, Hyderabad, Kolkata, Ahmedabad and Pune were excluded owing
to their established IT prowess.

Visiting these cities and trying to look at their IT
underbellies to feel the tech pulse proved to be an interesting journey.
Software exports, the influence of large enterprises belonging to verticals
already entrenched in that city, and finally e-Governance initiatives proved to
be the triad of the IT leit motif for most cities. The corollary effect
invariably would be a good market for IT consumption, both on the enterprise as
well as individual front, thereby ensuring a thriving reseller community in
almost every nook and corner of the country. Another impact has been on real
estate and general infrastructuremost experts believe that it is IT that is
responsible for the escalating land prices, and for the construction boom
happening in all these 25 cities.

Lets take the first big influencer of a citys IT indexsoftware
exports. And true to the Indian offshoring dynamics it has been the presence or
absence of the Big Three or Four (including Satyam in some cases) that
determines a citys worth in these terms. While the presence of at least two
of them raises the prestige of a city, the arrival of three or all four has
raised these locations to a much higher pedestal. No wonder, therefore, that
cities like Bhubaneswar, Kochi, Visakhapatnam, Madurai or Mysore score heavily
on this front.

What a TCS, Infosys or Wipro is doing with its presence is also
inspiring the tier-2 players to venture into these cities. Thus we have Aricent
and Mindtree moving to Bhubaneswar, Kanbay (Capgemini) into Visakhapatnam or a
CSC into Indore. This not just widens the ecosystem of the cities, but also
provides better growth opportunities for these tier-2 companies. Not just the
larger IT services companies, the domino effect of a thriving software exports
scenario is the presence of local niche players. The likes of Sankhya in
Visakhapatnam or Impetus in Indore or ESS in Bhubaneswar are the best examples.

And if IT services required a more skilled manpower, it has been
easier for the BPO industry to embrace these tier-2 and 3 locations. We,
therefore, today have a WNS at Nashik, a FirstSource at Puducherry, a Genpact in
Bhubaneswar and an MphasiS in Mangalore. Add to this the growth of local BPOs
like JSS Consultancy (Bhubaneswar) and it proves the contribution of IT/BPO
towards a more uniform national level development.

Manpower becomes an issue in whatever way the future of Indian
IT/BPO is discussed. While metros have saturated in terms of manpower supply,
the larger companies and even tier-2 have been depending on these smaller cities
for some time now. However, now with the companies themselves going to the
smaller cities, we are slowly witnessing a demographic change. Most locals are
staying back at their home towns and developing professional IT careers while
reverse migration, albeit only a trickle now, has already started. This too
would help not just the smaller cities but even the metros that are bursting at
their seams in terms of infrastructure and population explosion.

Data from Nasscom shows that software exports from tier-2 and 3
cities have grown dramatically from a mere 5% a couple years ago to 15-18% now.
Its expected to go up to 25-30% by 2010. Whats more, these new hotspots
are expected to employ 30% of the projected strength of 850,000 IT professionals
and 1.4 mn ITeS professionals by 2010.

An Ernst & Young study reveals that the demand for office
space in tier2 and 3 cities is expected to go up significantly in the next
few years. This is primarily driven by the IT and ITeS industry that requires an
estimated office space of more than 367 mn sq ft by 2010-2013.

Real estate prices in tier-2 and 3 cities are lower than in
tier-1 cities. Their development policies are conducive for real estate
development. These cities offer substantial cost advantages. Fully loaded costs
are as much as 30% cheaper compared to cities like Bangalore or Mumbai; real
estate costs are at least 20% cheaper.

The second big impact on the IT health, not many realize, is
being made by the traditional industries present in a particular city. The fact
is that today all sectors like BFSI, manufacturing, pharma or even small, micro
verticals are adopting IT tools and measures to not just enhance their business
but also to execute it in a more meaningful and better way. For example, pharma
companies like Torrent and the likes have played a crucial role in Vadodaras
IT growth, while steel is doing the same for Bhubaneswar. Even the Indian Army
and Navy have worked wonders for places like Srinagar and Vishakapatnam
respectively; small sectors like hosiery in Ludhiana, diamonds in Surat or even
wine in Nashik have turned out to be the IT elixir.

The third pillar of IT growth is e-Governance. Here again it has
been the presence of more technocrats (mostly engineering grads and MBAs coming
through IAS) that ensured the realization that the e in e-Gov is
immaterial as long IT can ensure better, faster and more helpful governance.
Therefore, its not a surprise to find that most of these 25 cities belong to
states that have a good report card on the governance front, especially its
automation part.

Years ago historian Vincent Smith wondered about Indias Unity
In Diversity; its an Indian company that inspired Friedmans Flat World.
Somewhere between the two is emerging the concept of a flat India and IT
is one of its principal, if not the strongest catalyst. True, a vast part of the
rural hinterland is still virgin for ITs advances. The digital divide
between urban and rural India is still too wide a chasm. But even then the idea
of Indias secondary urban hub coming mainstream calls for a celebration.
Secular growth might not remain only in economics theses or on politicians
lips, and IT would finally be paying back its debt to society.

Rajneesh De, Shaswat DC, Shipra
Malhotra, Balaka Baruah Aggarwal

rajneeshd@cybermedia.co.in