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Introduction

Bengaluru is situated in south east Karnataka and is the capital of the state. It is the fifth-largest metropolitan area in India and is also known as the IT capital of India. In 1986, the state government bifurcated Bengaluru district into Bengaluru urban and Bengaluru rural for better administration and governance. Bengaluru urban area is spread across 2,190 sq km and Bengaluru rural area is spread across 5,815 sq km. In FY07, the GDP of Bengaluru at Rs 591.23 billion accounted for 29.4% of the GDP of the state, which was Rs 2,009.22 bn. The population of Bengaluru, which was 6.53 mn in the Census 2001, is expected to reach 8.9 mn by 2011.

Infrastructure

Bengaluru has a well-developed infrastructure and the city is well-connected via road, rail and air not only to the rest of the country but also to the world.

• Highways and roadways: Four major national highways (NH) connect the city to the rest of the country; NH 4 connects the city to Mumbai, Pune, and Chennai; NH 7 connects the city to Hyderabad and Madurai, and NH 48 and NH 209 connect Bengaluru to Mangaluru and Coimbatore, respectively. Currently, Bengaluru has a 1,500-km long road network.
• Rail network: Bengaluru is well-connected to all major Indian cities by rail. Bengaluru City Junction, and Yeshwanthpur
are the major stations in Bengaluru. The rail network of the city is broad gauge and the total length of the network is 148.32 km (as on March 2005).
• Air routes: Bengaluru is well-connected to many Indian and international cities by air. India’s second greenfield international airport has been developed at Devanahalli in Bengaluru for Rs 24.7 bn as a passenger and cargo hub under the PPP mode. The airport was opened to the public on May 24, 2008 and is located 34 km away from the city. Bengaluru has direct flight connectivity to Delhi, Kolkata, Mumbai, Hyderabad and international cities such as Bangkok, London, Paris, Frankfurt, Singapore, Dubai and many others. In FY09, the aircraft traffic from Bengaluru international airport increased by 19% y-o-y to 13,920 as compared with 11,700 in the previous period.
• Buses: The Bangalore Metropolitan Transport Corporation (BMTC) provides an economical and efficient bus service to the citizens in and around Bengaluru. KSRTC also operates buses that connect Bengaluru to other parts of Karnataka, besides other states. The city has four major bus stations (Subhashnagar – earlier known as Kempe Gowda Bus Station – Shivajinagar, Shanthinagar and City Market) and 31 minor bus stations spread across the city.

The Karnataka state government has planned and has initiated major infrastructure projects for Bengaluru. These projects are expected to further catalyse the fast-track growth of the city as well as the industries operating in the city. A few major upcoming/ongoing projects are listed in the table below.

Industrial set-up

Bengaluru is referred to as the Silicon Valley of India as it accounts for more than 35% of the software exports of India. The city has also earned other monikers like the Science Capital of the Country, the Garden City, the Fashion Capital of India, and the Floriculture Capital – which is the latest recognition the city has earned for its flourishing flower export business. It is the fourth-largest technology cluster in the world after Silicon Valley, Boston and London and is said to be the fastest-growing city in Asia. The city takes a lead as the most-preferred destination for high-technology industries, particularly in the IT/ ITeS and biotechnology sectors, for its year-round pleasant climate, excellent social and health facilities, and its high-quality educational, scientific and technology institutions.

The total exports from Karnataka increased at a CAGR of 39% from Rs 201.44 bn in 2001-02 to Rs 1,058.50 bn in 2006-07.
In these total exports, the electronics and computer software exports specifically grew at a CAGR of 37% to Rs 564.78 bn
during the same period. The IT sector accounted for 53% of the total exports from Karnataka and 36% of the total Indian
exports in this sector.

Bengaluru is a global outsourcing hub for many businesses such as IT/ITeS, biotechnology, nanotechnology among others. The Software Technology Park of India (STPI), the International Tech Park Ltd (ITPL), and the Electronic City are the main IT clusters that are set up in Bengaluru. The city hosts 2001 IT companies, 664 MNCs, and 32 SEI CMM Level 5 IT companies out of the 63 present in India and 87 companies present around the world. Apart from the leading Indian IT companies such as Infosys, Wipro, and TCS, MNC IT companies such as Texas Instruments, CISCO, IBM, HP, Compaq, Sun Micro Systems, Motorola, Microsoft, Lucent Technologies, Oracle and Novell also operate in Bengaluru.

The city is a preferred destination for biotechnology firms too. There are 340 biotech companies in India, of which 183 are present in Karnataka. Nearly one-third of these 183 companies are located in Bengaluru, and this makes the city the biotech cluster of India.

Bengaluru is also the aerospace hub of the country. The two major state-owned organisations HAL and NAL have their offices in the city.

Automotives and auto components, engineering, pharmaceutical, textile/garments, machine tools, floriculture and food
processing are the other sectors that operate in the city.

Financial institutions

Karnataka, and particularly Bengaluru, offers strong financial support to entrepreneurs through several state government institutions such as Karnataka State Industrial Investment & Development Corporation Ltd (KSIIDC), Karnataka State Financial Corporation (KSFC) and Karnataka Information Technology Venture Capital Fund (KITVEN Fund), and public financial institutions such as IDBI, IFCI, SIDBI and NABARD. Besides, major banks like Canara Bank, State Bank of Mysore, Vijaya Bank, ING Vysya Bank Ltd, Citibank, HSBC and Deutsche Bank are also present in Bengaluru. The city has many venture capital fund providers too, such as Canbank Venture Capital Fund, SIDBI Venture Capital Fund and others that provide fund to IT/ITeS and BPO start-ups.

Educational institutes

Bengaluru has several universities such as the Bengaluru University, the Rajiv Gandhi University of Health Sciences, and the Vivekananda Yoga Anusandhana Samsthana. The Bengaluru University has 473 affiliated colleges and several other centres and directorates of higher learning and research under its purview. A few prominent educational institutions that are present in Bengaluru are listed below:

Employment statistics

According to the fifth economic Census 2005 data on employment, Bengaluru employed 1.29 mn persons across various sectors and accounted for 19.66% of the total persons employed in the state.

The number of persons employed in the Indian IT-BPO sector grew from 1.3 mn in FY06 to 2.0 mn in FY08 at a CAGR of 24.7% and this number is expected to go up to 2.2 mn in FY09, according to NASSCOM. According to the Department of IT, BT and S&T of the Karnataka government, Bengaluru employs 550,000 IT professionals, who form 1/3rd of the total IT professionals in India. Further, the potential for employment in the IT sector of Karnataka is expected to reach 1 mn by 2010, according to these departments.

Industry associations

Many associations operate in Bengaluru for the development and promotion of industries. Some such associations are listed in the table below.

Government initiatives

Karnataka was the first state to announce an IT Policy in 1997, and this initiative acted as an important catalyst for the growth of the IT industry in the state and particularly in the city. The government undertook the following initiatives under this policy:

• Incentives were offered in areas of cost of land, registration charges, FAR, zonal regulations for companies that created employment in the IT industry. New companies that provide employment to more than 250 persons in Bengaluru and 100 persons in other areas are also eligible for these concessions.
• Some other state level incentives were: entry tax exemption, power tariff concession, and quick clearance from the Pollution Control Board.
• The government established the STPI Bengaluru at the Electronic City in Bengaluru and ITPL at Whitefield. This nodal
agency for the software industry provides ready office space for IT industries.
• The state government set up the Karnataka Udyog Mitra, the Karnataka Information Technology and Biotechnology
Services (K-BITS) and other such organisations to guide investors in the establishment of companies in Karnataka.
• Besides, various FDI and trade promotion activities like organisation of meetings between Indian IT firms and visiting
foreign IT delegations to Bengaluru, organisation of IT.in, an ICT event in Asia at Bengaluru were undertaken by the Department of IT, to promote Bengaluru as an international high-tech IT software and services outsourcing hub.
• In the Sate Budget 2009-10, Rs 30 bn was allocated for the development of Bengaluru city.

Apart from these initiatives, the state government has set up many organisations to facilitate the industries in the state. Some of these organisations are listed in the table below.

Karnataka Industrial Policy 2009-2014

In 2009 the Karnataka government came out with a new industrial policy for 2009-2014. Under this policy, Bengaluru district was divided into four zones: Anekal, Bengaluru (North), Bengaluru (South) and Bengaluru (East) for administering package of incentives and concessions. Some important policy measures announced by the government under this policy are:

• Development of sector-wise industrial zones for optimal utilisation of local natural and human resources to minimise migration of people to urban centres.
• To provide world-class infrastructure to investors like all-weather road, uninterrupted power supply, adequate water, warehouse and logistic facilities, and connectivity through railways/ports. This sort of ready-to-use infrastructure enables investors to operate on a plug-and-play concept.
• Single-window clearance mechanism to be made more effective so that much of the clearances / approvals are accorded at the time of approval by SHLCC / SLSWCC / DLSWCC.
• Relevant provisions of Karnataka Industries (Facilitation) Act 2002 will be used more effectively to reduce the transaction cost and to do business with ease. Efforts will be made to accord all the required approvals within a specified time of 45 days.
• Simplification of land acquisition procedures with emphasis on inclusive development.
• Initiatives of the investors in developing private industrial areas / estates either in PPP mode / individual entrepreneurs / companies /co-operatives will be encouraged with a supportive package.

Special Economic Zones: Catalysts of growth

SEZs have played a major role in the development of small industries across all sectors in the country. As on June 2009 there were a total of 322 notified SEZs, 578 formally-approved SEZs and 146 SEZs having in-principle approval in India. The IT/ ITeS sector accounted for 61% of the formally-approved SEZs.

Several SEZs for specific sectors such as IT/ITeS, biotech, and others have mushroomed in the state due to the proactive measures undertaken by the Karnataka government (such as providing quality infrastructure, attractive fiscal package and minimum possible regulations). Presently, there are 15 functional SEZs in Karnataka, out of which 12 SEZs are in IT/ ITeS sector. Out of these 12 SEZs, 11 SEZs are located in Bengaluru. A few of the functional IT/ITeS SEZs in Bengaluru are Whitefield IT/ITeS SEZ, Bengaluru (Electronics City) IT/ITeS SEZ, Marathahalli-Sarjapur Outer Ring Road, IT/ITeS SEZ and an IT/ITeS SEZ at Devarabeesanahalli Village, developed by Vikas Telecom Ltd.

These SEZs have created innumerable benefits to the industry in terms of bringing in more exports, creating employment, and ensuring infrastructure development. The total exports of the IT/ITeS SEZs in Karnataka are estimated at Rs 18.39 bn for FY09 as compared with the actual export revenue of Rs 12.45 bn in the previous year. As on March 2008, the total employment (includes direct and indirect) in the IT/ITeS SEZ was 49878 and accounted for over 90% of the total persons employed in SEZs across all sectors in the state. The various incentives offered by the Central and the state government to set up units in SEZs are as follows:

• Duty-free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
• 100% income tax exemption on export income for SEZ units for the first 5 years; 50% for the next 5 years thereafter, and 50% of the ploughed back export profit for the next 5 years.
• Exemption from minimum alternate tax.
• ECB by SEZ units up to US$ 500 mn in a year without any maturity restriction through recognised banking channels.
• Exemption from central sales tax and service tax.
• Single window clearance for central and state level approvals.
• Exemption from state sales tax and other levies as extended by the respective state governments.
• Domestic sales by SEZ units exempted from SAD.
• Reinvestment allowance to the extent of 50% of ploughed back profits.
• Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas investment from it.
• Exemption from interest rate surcharge on import finance.
• SEZ units allowed to write-off unrealised export bills.