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Monday, Dec 13, 2004

Opinion

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Enabling IT growth

By V. Jayanth

Industry-specific townships could be the solution to the infrastructure constraints the information technology sector is facing.

THE INDIAN software and information technology industry has maintained phenomenal growth over the years. It is all set to clock $16 billion in exports during the current year and the Nasscom president, Kiran Karnik, is convinced it will climb to $20 billion next year. The problem now seems to be where and how the industry can expand to meet those demands. There are no doubts about demand in the international market and Indian industry seems confident it can deliver. Now it is a matter of identifying suitable locations for expansion, getting the infrastructure, and recruiting the manpower.

Industry leaders and trade bodies, notably Nasscom and the Confederation of Indian Industry (regional offices), have been taking up with the State Governments the feasibility of developing the infrastructure to support such a vast expansion. According to Mr. Karnik, the global customers are wondering if Indian industry could put up one million square feet of office space in, say, six months and, more important, get the required infrastructure in place — roads, connectivity, transport and accommodation to mention just a few. As things stand, Delhi and its environs, Mumbai-Pune, and the four southern States provide the major bases for the software, IT, ITES sector and this looks set to continue.

To provide for this level of growth consistently over the years, there has to be a planned approach — by both industry and State Governments. CII, taking the specific case of Chennai, has recommended the Knowledge Industry Township (KIT) concept to promote the growth of the IT industry. The same approach may help in other centres too, considering the scale of expansion required. Industry leaders in Chennai feel that here alone another 200,000 jobs will have to be created by mid-2005 and up to 500,000 jobs in 2005-06.

Similar growth is expected to take place in Karnataka, Andhra Pradesh, and to a lesser extent in Kerala. As such, IT companies are also looking at second-tier towns in these States — Mysore, Kochi, Visakhapatnam, and Coimbatore.

By promoting a KIT, a State Government will not only anchor the IT industry in the initial phase, but go on to attract other knowledge industries including biotechnology, pharmaceuticals and hardware. And these will be non-polluting industries. The scope for R&D centres in such a township will also attract those interested in pursuing that line. The presence of good institutions of higher education along such a corridor is also considered useful, according to a study conducted by the CII-KPMG. That study went into the whole concept of a KIT, the possible location, sizing, phasing, social infrastructure, academia-industry interaction, ownership and governance of the township, and the possible economic gains that would accrue from it.

The States that are keen on attracting investments in this sector must act immediately to provide the social and physical infrastructure. This will mean roads, transport and communications, recreational facilities, housing and all the utility services such as power, water supply, and proper drains. It will obviously be difficult to develop a KIT in six months time. But it is quite possible for States to identify potential sites and go in for a fast-track development in the first phase to enable IT industries to start up within a year and then phase the rest of the work.

Even such development cannot be taken up entirely by the State Governments. Officials involved in infrastructure projects suggest a public-private partnership approach to such ventures. If a group of industries that intends to set up shop in a chosen location can come together, interact with the Government agencies and promote a joint venture platform to develop a township or industrial park (in the initial phase), it would be so much easier for the States to go ahead full steam.

From the Government's point of view, a pro-active approach to a KIT will bring in new investment and employment opportunities. This will help generate additional revenue, including local taxes, for ploughing back into new development ventures. For all this to happen, State Governments must look at land acquisition, set up a special purpose vehicle, develop a master plan with zoning, work in tandem with development agencies and industries, and closely monitor the progress to complete the project within a short time span. Industry, on its part, must begin work on individual complexes and pave the way for industry-institute interface.

For all this to happen, Government sources insist that the Centre must help in funding infrastructure development. Officials suggest two courses of action. The Centre could make available some of the foreign exchange reserves it plans to tap for infrastructure development or else a certain percentage of the export earnings from the States could be given back for such projects.

On their own, the States are finding it very difficult to fund even on-going development programmes. Mobilising more resources for such massive investments in infrastructure may be out of question. Nasscom, on its part, has recommended a two to three per cent allocation in the Union budget for the IT sector to enable it to achieve its potential and meet the growing global demand. Finding the funds seems to be the real hurdle in this exercise.

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