The hottest T2 destination?

Here is a quick quiz. Which state in India pioneered the IT park concept? If
your answer happens to be Bengaluru or Hyderabad, you've got it wrong. It's
Kerala. Surprising as it may sound, it is true. Kerala's IT park, branded as
Technopark, traces its antecedence way back in the early 1990s when India was at
the cusp of a new economy. But sadly Kerala did not cash in on the IT boom that
raged in the 1990s that propelled Bengaluru into the Indian Silicon Valley.
While reams and reams have been written about why Kerala missed the IT boom in
the 1990s with major spoilers being the trade union communist driven state
politics that created a perception that IT will not happen in this part of the
world, the government has identified IT and tourism as the two growth engines
for the state's economy. The success of many IT companies, big and small, have,
to an extent, broken this perception and made Technopark in Thiruvananthapuram
and Infopark in Kochi a big success. Notwithstanding the success of these
companies Kerala did not manage to take a bigger slice of the IT opportunity,
often dwarfed by its immediate neighbors that managed a larger chunk of the IT
offshoring opportunity.

Ground Realities

Today after more than a decade of the Technopark, the government has finally
come to terms with the truth that Kerala can never compete with the biggies of
the south and is making concerted efforts to make it the best tier-2 location in
the country. Two things have happened in Kerala: one it has made
Thiruvananthapuram as a software services and IT product development destination
and two, Kochi's Infopark is pitched as an IT and BPO destination in addition to
services.

With both Technopark and Infopark boasting of 100 percent occupancy, the
government is making plans to move IT and BPO in from the metros. This move by
the government comes at a time when there is an overall recessionary environment
in the IT industry, but the Kerala government has earmarked investments to the
tune of Rs 2,000 crore to build 10 IT parks for equitable distribution of IT
development across the state. There will also be additional investment on the
PPP model. But the government is optimistic.

Yet another silver lining is that when the overall growth of software exports
in Kerala in recent times looks impressive. During 2007-08, the software exports
from Infopark in Kochi witnessed a growth of nearly 85 percent. That from
Technopark in Thiruvananthapuram saw a growth of over 65 percent, taking the
combined and total software exports from Kerala to Rs 1,200 crore. Although a
small base, the overall growth of IT exports grew nearly three times the
national growth in the same period. Despite the slowdown in the industry, the
growth is projected to be an impressive 30 to 40 percent higher for FY '09,
according to sources in the government.

Infra Pipeline-Up Close

Let's take a closer look at the state's ambitious plans. Right now Kerala is
in the process of scaling up its IT infrastructure five times from the existing
levels, over the next five years. The government claims that unlike other
states, the IT development in Kerala will not center in just one or two cities.
The development is planned for all parts of Kerala through a hub and spoke
model. Thiruvananthapuram, Kochi and Kozhikode will act as hubs and the
surrounding locations as spokes.

In terms of investments, an investment to the tune of Rs 1,500-2,000 crore
will be made by government agencies in the next five years. In addition, another
Rs 4,000 crore is expected to be mobilized through the PPP model. Out of the
total investment about Rs 700-800 crore will be mobilized as term loan funding
from the banks. Government budgetary assistance is expected to yield about Rs
150 crore. NABARD RIDF loan is proposed to the tune of Rs 300 crore. According
to the government, work in all the new IT parks has started.

GOvernment aid

The Kerala government said that it is doing what is best possible for the
promotion of IT in the state. For instance, in the recent state budget the
government announced a deficit budget with no new taxes, and a range of welfare
measures including a Rs 10,000 crore special package to tide over the slowdown
in the economy. Observers hope the IT industry will also benefit from that. The
overall gloom in the Technopark though is evident, and going by the rumor mills,
more than 2,000 people have lost their jobs in the 150 odd companies that are
operating out of the Technopark. Analysts see this as a global trend and not
just specific to Kerala. UST has large facilities in the Technopark and does
cutting edge solutions for leading US retail brands. The company has
successfully tapped into the Kerala advantage by engaging the local talent in
its global delivery model.

FUTURE PLANS

While the IT industry welcomes the positive moves on the IT infrastructure
front, it also expects some kind of stimulus package from the government like
freeze on rental hikes in IT facilities in Technopark and Infopark. While the
government is making some effort regarding that, companies want some substantial
benefits. Others also worry about the fate of these IT parks till completion.
Looking at the economy, it might be difficult for the government to find private
investors who can pump in money for IT parks in tier-3 or 4 locations. Looking
at the developments right now, the Kerala government has taken bold steps to
scale the IT infrastructure, but much of the success depends on the overall
recovery of the economy and on IT offshoring bouncing back. The Kerala
government is bullish that its anticipated demand scenario based approach will
be a sure winner.

Source: dataquest