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Karnataka beckons

Print edition : Jun 15, 2012

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The State invites investors as the biennial Global Investors Meet (GIM) meet is set to get under way in Bangalore on June 7 and 8.

in Bangalore

KARNATAKA has an illustrious history of successfully introducing several industrial and technological initiatives. This is hardly surprising since for over a century the region, initially under the rule of the far-sighted maharajas of Mysore and later under a succession of democratically elected governments, has been a pioneer in industrialisation. As Chief Minister D.V. Sadananda Gowda says: Karnataka is the gateway of innovative India. A destination that offers investors the right blend of strengths and opportunities.

Today, Karnataka is driving domestic growth and creating wealth through a critical mix of resources-, skill-, technology- and knowledge-based products and services. A proactive government, investor-friendly policies, skilled manpower that is readily available, and a congenial atmosphere have made Karnataka an industrial powerhouse. The State's capital, Bangalore, has also become the aerospace and information technology (IT) capital of India. In what is a clear reflection of its investor friendliness, Karnataka has the third largest (after Maharashtra and Delhi) share (6 per cent) of foreign direct investment (Rs.42,131 crore) in India.

With an area of 191,791 square kilometres, Karnataka is one of India's fastest growing States. It accounts for 5 per cent (61.1 million according to the 2011 Census) of India's population but contributes 6 per cent of the gross domestic product (GDP), 7 per cent of fixed capital and 13 per cent of exports. The State has a gross State domestic product (GSDP) at constant prices (2004-05) of $56.7 billion and a GSDP growth rate of 8.2 per cent (2010-11). Its major industries, besides IT, are automotive and aerospace, chemicals and petrochemicals, mines and minerals, biotechnology and pharmaceuticals, energy, tourism, textiles and apparels, agro and food processing. The State has five airports (three domestic and two international), 11 ports (with a traffic of 44 tonnes in 2009-10), 4,396 km of national highways, 20,528 km of State highways and 3,250 km of rail connectivity.

Interestingly, the Karnataka State Industries and Commerce Department is completing 100 years of investor and industry facilitation. Karnataka, in fact, was one of the first States to come up with an Industries Facilitation Act. The State also has a dedicated nodal agency, the Karnataka Udyog Mitra, which provides all investors who are looking to set up business in the State single-window facilitation. The State's New Industrial Policy, 2009-14 offers investors a number of attractive concessions/incentives such as exemption from entry tax, Agriculture Produce Market Committee (APMC) cess/fees; electricity and stamp duties; concessional registration charges/refund of conversion fee; investment promotion subsidy for MSMEs (micro, small and medium enterprises); interest-free loans on VAT for large and mega projects; anchor unit subsidy and special incentives for units coming up in low human development index districts.

Unarguably, what set the industrialisation ball rolling was the setting up of Asia's first hydroelectric power station in 1902 at Shivanasamudram, on the Cauvery. The power station boasted the then longest transmission line in the world 147 km from Shivanasamudram to the mines at the Kolar Gold Fields. Even today, Karnataka ranks second in India in installed hydroelectric capacity (3,599.8 MW).

The 1950s and 1960s saw the establishment of a number of public sector enterprises such as Bharat Electronics Limited and Bharat Earth Movers Limited, and defence laboratories of the Defence Research and Development Organisation, all set up to augment India's defence preparedness. The State government also set up public enterprises, and laid the foundation stone for Electronic City, one of India's largest electronic industrial parks, in the late 1970s. Spread over 332 acres (one acre is 0.4 hectare), Electronic City, on the outskirts of Bangalore, is the pioneer in IT infrastructure development. It made Bangalore in the years to come the business outsourcing capital of the world. Incidentally, Bangalore, which has its fair share of traffic congestion, parking woes, water shortages and power fluctuations, has been rated as the second most vibrant among the top 50 cities in India.

The advent of IT and IT-enabled services (ITeS) was the next big thing to happen in Karnataka. The IT explosion came in the early 1990s with a host of national and international companies setting up base in the city and spearheading the Indian IT revolution. Be it software (enterprise solutions, IT applications, e-commerce and security, storage solutions, cloud solutions), hardware (semiconductors, electronic and printed circuit boards, embedded solutions, computers and peripherals), infocom (telecom, wireless and broadbrand, mobile operating systems and applications, networking products), animation and visual effects, gaming and comics, production studios, new media, digital art centres, IT training and education, research and development, IT and hardware parks, venture funds and Internet protocol (IP) consulting, Karnataka has it all.

Bangalore is the fourth largest technology cluster in the world, with over 2,025 IT companies, 330-plus BPOs/ITeS and 100 hardware units, and has become a global outsourcing hub for IT and ITeS. There are today over 800,000 IT professionals working in Bangalore. Karnataka is home to 700 multinational and 87 Fortune 500 companies and the highest number of CMM (Capability Maturity Model) level 5 companies in the world. Besides, an exclusive industrial area for electronic hardware and IT/ITeS is coming up at Devanahalli, near the Bangalore International Airport.

Karnataka expects its IT exports in 2011-12 to cross $20 billion (the highest from any State in India), but not wanting to rest on these laurels it hopes to position itself as a major electronic system design and manufacturing hub and animation and visual effects capital. Karnataka is also pushing to promote IT parks in Tier II cities, such as Hubli-Dharwad, Belgaum, Gulbarga, Shimoga, Davangere and Mangalore, and rural BPOs. Says Murugesh R. Nirani, Minister for Large and Medium Industries: One new global company moves into the State every week and a new industrial unit is approved every day.

Listed among the top four innovative hubs by the World Economic Forum, Karnataka aims to be the finest investment destination in India with economic growth across IT, biotechnology, aerospace, nanotechnology, machine tools and construction equipment, defence technology, knowledge and business process outsourcing and clinical research sectors.

In April, Union Finance Minister Pranab Mukherjee laid the foundation stone for an exclusive financial city on the outskirts of Bangalore. To be developed over three years at the cost of Rs.1,000 crore, the financial city, which is the first of its kind in India, will, according to Mukherjee, enable financial institutions to establish and run a variety of operations, including support activities, and meet regional financial demands. The choice of Bangalore for establishing the city is a reflection of its status as a financial superpower in terms of the size of bank credit and deposit, and income tax collections, being next only to Mumbai and New Delhi.

Karnataka, which has established software technology and biotech parks, has also initiated plans to set up a dedicated nanotech park, a knowledge city and a manufacturing unit for defence. The State has also approved the setting up of 58 special economic zones (SEZs). Of these, 20 are already operational with a total investment of $3 billion. They have so far generated 97,313 jobs and exports worth $5.7billion.

In terms of education and research, the Indian Institute of Science (IISc) and the Indian Institute of Management (IIM) in Bangalore top the list of quality institutions in the State providing a ready-made pool of highly skilled human resource across a variety of sectors. Besides, Karnataka also has over 100 R&D centres (the largest number anywhere in India), 22 universities imparting general education, 187 engineering colleges (third largest in India), 114 medical and dental colleges (again the highest in India), 181 polytechnics, 600 Industrial Training Institutes (ITIs) and 13 international schools.

Eight of India's 75 top-ranking engineering institutions are in Karnataka. The State is also home to the prestigious National Law School of India University.

The Knowledge Hub of Asia, as it is called, Karnataka is the No.1 investment destination among India's 16 developing States, according to World Bank Report, 2009. It is a leading producer of horticulture products, accounting for 12 per cent of the fruits and 8 per cent of the vegetables grown in the country, and contributes 70 per cent of India's coffee output (the largest in India). The State accounts for 20 per cent of India's garment production.

Karnataka ranks fourth in automotive production, with an investment of $713 million and an annual revenue of $6,014 million. The districts of Ramanagara, Shimoga, Kolar and Dharwad have been designated as automobile zones. A dedicated auto cluster is coming up in Hubli-Dharwad, and an SEZ for auto components is being established in Shimoga. Karnataka produces more than 25 per cent of the indigenously manufactured aircraft and space equipment.

The mineral-rich State has around 3,447 million tonnes of iron ore deposits and 2,518 million tonnes of manganese ore. There are also abundant deposits of granite (pink, green, black, grey and yellow), soapstone, sandstone, graphite, limestone, quartzite and clay. Annually, Karnataka produces over 11 million tonnes of cement and (until the illegal iron ore mining controversy hit the industry) 7.29 million tonnes of steel. India's only gold-producing mine the Hutti Gold Mine is located in Raichur district. The State has the second largest number of bauxite mines. Yet, a shortage of quality power (since the 1980s) and clear-titled land and the lack of world-class infrastructure have impeded Karnataka's march to become India's most industrialised State.

In a bid to address the problems associated with land acquisition for industrial purposes, the State government has established a land bank under which 1.19 lakh acres of land has been identified for acquisition by the Karnataka Industrial Areas Development Board. According to Nirani, 50,000 acres of this identified land is ready for final acquisition.

Commenting on the issues surrounding Posco India Private Ltd's (the Indian subsidiary of the South Korean conglomerate Posco) plans to put up a Rs.32,336-crore steel plant in Gadag district, Nirani explained that if local farmers were unwilling to part with their land the plant, which requires 3,382 acres of land, could come up in a neighbouring district.

The Minister also spoke optimistically about the power situation, emphasising that the State would soon have adequate power. He said: A thermal power-generating plant is coming up in Bijapur. We are on the verge of signing a number MoUs [memorandums of understanding] with power-generating companies for 18,000 MW of power.

With 38 per cent of Karnataka's population living in urban areas, investment in urban infrastructure is a key area for investors. Urban services to meet the demands of Bangalore's rising population would require investments totalling $5,796 million over the next five years. Bangalore needs an investment of $ 5,208 million to meet its transport and traffic requirements.

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