50 IT cities in India - Why ?

The government’s reported move to build over 50 IT cities in the country to retain India's top position in this sector may change the entire landscape of the industry which is now concentrated in big cities.

It could also pave way for even urbanisation of the country.

The move, complementary to the IT investment region scheme cleared by the Cabinet a few weeks ago, does not come as a surprise to companies which are expanding beyond the metros to service their onshore and off-shore clients.

Nasscom, the industry body for IT companies, has been in talks with the centre for developing new IT regions in the country. It has short-listed 50 locations in the country -- other than the top seven cities --for companies to set up shop.

“With the surge in real estate prices, IT and ITes companies are finding it tough to set up operations in traditional locations including Bangalore, Chennai, Mumbai, Hyderabad, Kolkata, Gurgaon and Noida. We expect small cities to anchor the next growth wave in the IT industry,” says Ganesh Natarajan, chairman of Nasscom.

Nasscom has, perhaps, taken a cue from China which has developed small growth regions such as Wuxi and Dalian for industrial development. It reckons that Tier II cities will have the potential to account for at least 40 per cent of the total projected IT/BPO jobs by 2018 provided there is a balanced growth.

Currently, the top seven cities account for over 85 per cent of IT sector employment “The proposed move will help spread development across the country and ease out pressure from big cities, where infrastructure is crumbling. By encouraging locations outside metros, the government could make way for reverse migration,” he said.

Srinivas Vadlamani, CFO, Satyam Computer Services, said the company has already initiated steps to move out of large cities.

“We are planning to move into places like Vizag, Nagpur, Gandhinagar and Madurai and are setting up our own SEZs. This can lower our cost of operations, cut travel time and traffic congestion which our associates face in the Tier I cities,” he said.

He says the government should offer incentives such as salary subsidy, free office space and liberal tax breaks spread over 10-15 years to make this move successful. Some of the Asian governments like China and Malaysia already offer such incentives.

“The state governments, for instance, can support the development of these areas by extension of similar tax benefits that are given to the Software Technology Parks of India (STPIs) and the Special Economic Zones,” said Natarajan.

But it is not clear whether the government plans fiscal incentives -- similar to those enjoyed by companies set up in software technology parks -- in the proposed IT cities. Companies are hoping it would, citing the slow-down in the US economy and its impact on their bottomlines.

According to Sanjay Khendry, vice-president (global business development), Sierra Atlantic, the proposed move to set up new IT cities will also help improve lives of people in small cities.

“It will also provide an opportunity for existing employees to move to their native places. It could lead to improved educational opportunities as new institutes could come up in these cities. For smaller firms, it will be an added advantage as they will be able to get access to a larger talentpool,” he said.