Page 1


RESURGENT KARNATAKA Anchored by Prof. MV Rajeev Gowda, MP

Edited by Sandhya Mendonca


Editor in Chief: Sandhya Mendonca Editorial Consultant: Saswati Chakravarty Interviews: Subhalakshmi Roy Aerospace interviews: Dr. Anantha Krishnan M Copy editing: Jose Philip Cover design & Template: Mishta Roy Layouts & Processing: Pramodh BS Image processing: Jagdish Babu DK Resurgent India team: Ramprasad Alva, Nandan Sharalaya, Shruti Kedia, Yash Sripuram, Anju Rao G, Aliya Das Gupta & Ishita Trivedi Printed at: Grafiprint (P) Ltd (division of WQ Judge Press) Bengaluru ‘RESURGENT KARNATAKA’ First published 2016 © 2016: Raintree Media Pvt. Ltd. ISBN No. 978-81-930248-7-4

Published by Raintree Media Pvt. Ltd.

TF 9, Business Point, 137 Brigade Road

Bengaluru 560025 | T: +91 80 4094 7873

www.facebook.com/raintreemedia

@RaintreeMediaHQ

E: mail@raintreemedia.com / raintreemedia@gmail.com www.raintreemedia.com CIN: U51396KA2004PTC033191 with RESURGENT INDIA TRUST, 1361, 9th Cross, JP Nagar I Phase, Bengaluru 560078 Every effort has been made to ensure the accuracy of the information in this publication. Raintree Media does not take any responsibility for inadvertent errors or omissions. All brands, products and trademarks are the property of their respective owners. All opinions expressed in the book belong to the persons cited. Some of the interviews have been edited for the purpose of clarity and space. All rights reserved: No part of this publication shall be reproduced, copied, transmitted, adapted or modified in any form or by any means (except as quotes in reviews/articles, with due credit). This publication shall not be stored in whole or in part in any form in any retrieval system except via legal purchase/downloads.

2


Contents

RESURGENT KARNATAKA

Make in Karnataka : Mr. Siddaramaiah, Chief Minister of Karnataka 5 Invent, Innovate & Invest Mr. RV Deshpande, Minister for Large & Medium in Karnataka: Scale Industries and Tourism, GoK 6 Primed for Growth : Prof. MV Rajeev Gowda, MP 8

Sector Overviews & Insights

Aerospace 16

Agro & Food Processing 30

Banking 41

Biotech & Pharma

Education 70

Energy 83

Healthcare

92

Infrastructure

103

Information Technology

116

Manufacturing

126

Real Estate

141

Smart Cities

158

Startups

166

Tourism

175

60

3


Editor’s Note

RESURGENT KARNATAKA

Publishing a book on the cusp of a global investors’ meet is an interesting challenge. On the one hand, there is excitement in the air; on the other, there are cries to look at the ground reality. We have taken a hard, close look at 14 core sectors of Karnataka’s economy. We offer overviews of these sectors, we analyse the state’s performance and examine the sectoral industrial policies. We think of this book as a dialogue, as it has insights of over 60 business leaders and domain experts. Some of these are legendary entrepreneurs and iconic trendsetters who have built global businesses from this very state. Some of them are new players in the world of business, chasing their dreams in younger domains. They share their views, analyses and prescriptions about Karnataka as an investment destination for the world. We want the world to come to Karnataka, we want to be connected to global currents and growth. The state has plenty to offer in terms of human capital. It is the largest state in south India, with its history dating back to 345 AD. It is the ninth most populous state in the country, with a population of 65 million, and about 5 percent of Indians live in this state. Karnataka is the seventh most urbanised state in the country; 39 percent of the state’s population lives in urban areas, and it is estimated that by 2026, this number will rise to 42 percent. Over 65 percent of the state’s urban population is concentrated in 3 corridors: Bengaluru-Belagavi, Mysuru-Kolar, and Mangaluru-Karwar. Ten out of every 1,000 persons in the state is an in-migrant. Karnataka’s crowning glory and its garland of thorns are both to be found in its capital city, Bengaluru. The problem lies in the very success of this cosmopolitan city. It has a multilingual population of nearly 10 million. It is the in-migrants’ favourite city, attracting knowledge workers and people to work in manufacturing companies and a host of service industries.

4

Bengaluru is the fourth largest technology cluster in the world after Silicon Valley, Boston and London. 80 percent of global IT companies have based their India operations and R&D centres here, and it has the highest number of R&D centres in India. Grappling with traffic congestion and insufficient power supply, the city’s ‘liveability’ factor is under pressure. The challenge is to ensure that Bengaluru holds on to its attraction while the 29 other districts get bigger slices of the investment pie. Chief Minister Siddaramaiah and Large & Medium Scale Industries Minister RV Deshpande both address these issues in their statements that we carry in this book. The book has a very readable anchor piece by Prof. MV Rajeev Gowda, MP, who lucidly articulates the elements that he holds up as beacons of hope for a Resurgent Karnataka. Our effort, through pithy writing and a smart design, has been to offer a useful and, hopefully, an engaging book. Do write to me at sandhya@raintreemedia.com to share your views. Sandhya Mendonca Editor-in-Chief


RESURGENT KARNATAKA

Make in Karnataka

The Karnataka government is hosting a global investors meet, Invest Karnataka 2016, from February 3-5. It is pegged as a platform to boost to infrastructure, and as many as 112 infrastructure opportunities are being offered under the Public Private Partnership programme (PPP). Chief Minister Siddaramaiah makes a case for companies to ‘Make in Karnataka’. Invest Karnataka 2016 has the power to impact a large number of people in our state. The State’s Gross Domestic Product is about $120 billion at current prices and is growing at more than 7 percent. This growth rate is perhaps the highest growth rate anywhere in the world today. But, this is not enough. Our Industrial Policy for 2014-19 aims at an annual growth rate of 12 percent, to attract investments of `5 lakh crore and provide employment to 15 lakh people in the next 5-year period. This is the growth rate that we aspire for. This is the growth rate which will help us achieve our vision within a reasonable time-frame. During the last 2 years, we have approved over 450 projects, bringing in investments of around `1.21 lakh crore and generating 2.44 lakh employment opportunities. However, much more needs to be done. Our government is initiating a host of reforms and initiatives to speed up industry-led growth in the state. About the power situation, I have given the assurance that the power shortage is a temporary phase. We are working towards energy security for the state and planning to add 22 gigawatts of all forms of power by 2022. This includes 14.5 gigawatts of nonrenewable and 7.5 gigawatts of renewable-energy capacity. ‘Make in India’ is happening, and it is happening in Karnataka! The Honourable Prime Minister laid the foundation stone for Hindustan Aeronautics Limited’s helicopter manufacturing facility at Bidarehalli Kaval in Gubbi taluk in Tumakuru district, in January 2016, for which our government has allotted 610 acres of land. This project alone will bring in investments of about `5,000 crore. The facility will produce 600 Light Utility Helicopters in the first 15 years, create 4,000 jobs in Phase 1, and over 3,000 jobs in Phase 2. Some of the investments made in our state in the recent past are by Shell, Tata Power SED, Bosch, Scania and Toyota. Many

Mr. Siddaramaiah, Chief Minister of Karnataka others have made investments and capacity expansions. Honda has set up the world’s largest 2-wheeler manufacturing plant at Narsapura, Asian Paints is putting up the world’s largest paint plant in Mysuru, GSK is starting a manufacturing unit, and Himatsingka is expanding its operations in Hassan. Airbus is already sourcing components and subsystems worth $500 million from India for its A-330, A-350 and A-380 aircraft. Karnataka-based companies provide over 90 percent of this amount. Airbus is likely to increase this spend by four times over the next 4 years. All these companies will ‘Make in Karnataka’ – for India and for the world. The businesses in Karnataka are some of the best companies globally, and they are Karnataka’s brand ambassadors. Karnataka is proud of their achievements and we want them to continue to be here and expand in Karnataka. At the same time, we hope that they will promote Karnataka in all their interactions with the larger investor community. I have always personally been a big supporter of industry and will continue to be so. I firmly believe it is the growth of all sectors in the economy, and especially industry, which will help us achieve our aspirations and our goals. Our Government’s vision is to achieve inclusive, equitable and sustainable growth. Invest Karnataka 2016 has the power to impact a large number of people in our State. 5


RESURGENT KARNATAKA

Invent, Innovate & Invest in Karnataka

The State Government says its endeavour is not just to make Karnataka the best place to do business; it wants the state to be the best place to live, work AND to do business. In the build-up to the Invest Karnataka 2016, Mr. RV Deshpande, Honourable Minister for Large & Medium Scale Industries and Tourism, Government of Karnataka, answers a few tough questions on Karnataka; in particular, Bengaluru, apart from spelling out the dream plan to position Karnataka as the state where the future is being made. BENGALURU’S GROWTH At present, we have about 9.6 million people living in the city, making it the third largest Indian city in terms of population. This represents a 75 percent increase in population in the last 15 years, which is a phenomenal number by any standards. Frankly, nobody foresaw such an explosion in population. Each middle-class family in the city has at least one car and many actually have 2 to 3 cars. Rapid growth rates bring its own challenges, and this is one such challenge. While I agree that the Government has been behind the curve in providing the infrastructure required to handle the population, we are constantly doing all that we can to manage the situation. These are some of the measures to ease traffic congestion in Bengaluru: • N  amma Metro Phase 1 is almost complete. Work on Phase 2 will begin shortly. • T  he Kempegowda International Airport is already regarded as one of the best-managed airports in the country. The expressway from the airport to the city is now complete. • W  e are upgrading several roads and bottlenecks in the city with signal-free corridors and elevated roads. These include the Silk Board to Marathahalli Outer Ring Road, the Hebbal-Windsor Manor flyover project, and the Peripheral Ring Road. Expansion to Tier-2 cities While the Government is trying its best to decongest the city, we would like industry captains to appreciate the enormous challenge we have on our hands and help us by locating new projects in

6

Mr. RV Deshpande, Minister for Large & Medium Scale Industries and Tourism, Government of Karnataka Tier-2 cities. Mysuru, Mangaluru, Belagavi, Hubballi-Dharwad and others have climate very similar to Bengaluru, with highly skilled and talented workforce. I urge companies to consider expanding in these cities. Ease of doing business Ease of doing business is everyone’s favourite topic these days. However, this is not new to Karnataka; we introduced the Industries Facilitation Act in 2002, even before World Bank came up with its ‘Doing Business’ report of 2002. In the recent, past we have introduced several reforms. Our endeavour is not just to make Karnataka the best place to do business; we want it to be the best place to live, work AND to do business. This means providing the best support infrastructure for industry, and the best social infrastructure for its citizens. Despite some challenges, we continue to maintain our lead in several sectors. Within India, we are without doubt the most advanced state. We are the undisputed hub of ‘Digital India’; we are the ‘Knowledge capital’, the ‘Startup hub’ and the ‘Hi-tech hub’ of India. The Government of Karnataka has carefully positioned the state on 3 core principles:


RESURGENT KARNATAKA

Karnataka is where the future is being made Karnataka has evolved into a hub for the hi-tech industry. As many as 400 of the best and the largest global companies have their R&D and innovation centres located in Karnataka; in aerospace, defence, information technology, biotechnology, pharma and others. Futuristic companies in 3D printing, nanotechnology, advanced materials and robotics are all located in Karnataka. Major logistics hub The state’s geography has inherent strengths due to its strategic location connecting the east and the west - a 300-km coastal line, 2 international airports, ports which are well-connected with highways and important railheads. The Kempegowda International Airport handles the third highest air cargo traffic, and is the third busiest airport in India. These factors will make Karnataka a major logistics hub in the southeast Asia region. Most globalised state in India A strong supplier base, lower cost of labour, a skilled talent pool

Invent, Innovate & Invest in Karnataka

and companies operating in clusters have created an environment wherein exports can flourish. As a result, Karnataka contributes 13 percent of all exports from India. Karnataka’s openness to export trade is 47 percent against a national average of 24 percent. This shows how much more we are integrated with the global economy as compared to the rest of the country. Companies come to India for lower labour costs and huge scalability, but they come to Karnataka when they look for a powerful combination of highly skilled workforce, great technical expertise, relentless innovation and a thriving ecosystem. The people of Karnataka are welcoming and harmonious. Karnataka scores high on social infrastructure, labour relations, and law and order. With a cosmopolitan populace, excellent weather all-round the year and some of the best tourist destinations – sandy beaches, misty hills, historical monuments, heritage sites, and adventure sports – Karnataka has all it takes for companies to succeed. We want people to invent in Karnataka, innovate in Karnataka, and invest in Karnataka.

Karnataka is the largest state in south India. The Vidhana Soudha, in the capital city of Bengaluru, was built in 1956 in the Neo-Dravidian style, and is the seat of the state legislature & government. Photo : Light & Life Photography

7


RESURGENT KARNATAKA

Primed for growth

At the dawn of 2016, India is the one bright spot in a dull global economy. A variety of forces is helping India grow at a brisk rate even in the midst of a prolonged economic downturn worldwide. These include a substantial internal market, a youthful, aspiring population, financial outreach to the unbanked and the emergence of widespread mobile telephony and e-commerce. Consequently, India continues to attract significant foreign direct investment (FDI), outpacing even China and the United States. Given that FDI helps lay the foundation for sustained growth, this is a welcome development. Once investors decide to come into India with FDI, where do they focus within the country? The factors that could influence them may include (i) a facilitative, supportive State Government; (ii) infrastructure; (iii) natural resources; (iv) talent and highquality human resources; and (v) a culture that supports enterprise and innovation. This article explores how Karnataka performs on these factors, given that the state has been among the Top 3 destinations within India for FDI. FACILITATIVE GOVERNMENT A century ago, Mysore state (which became Karnataka) was renowned as a model kingdom led by an enlightened ruler and supported by outstanding Diwans like Visvesvaraya and Mirza Ismail. This tradition has continued in modern times, and the State Government has a solid track record of being supportive and facilitative through a range of proactive policies. The range of government initiatives targeted at different sectors is highlighted in the appropriate chapters in this book. The Siddaramaiah-led Congress government’s social sector schemes have created a crucial safety net for the poor and vulnerable. True to its reputation as a pioneer of e-governance, Karnataka’s ‘Mobile-One’ app provides access to 600-plus government services and 3,000-plus private services. Veteran industries minister RV Deshpande is proactive in his efforts to create a productive environment for industry. The state’s solar energy policies are bringing in farmers and homeowners as partners in efforts to attain self-sufficiency in power. Other recent governance innovations include the ‘Sakala’ programme, which guarantees that citizens receive a range of public services in a timely manner. Infrastructure & industrial clusters A farsighted Karnataka Government set up Electronic City in 8

Prof. MV Rajeev Gowda, Member of Parliament, former Chairperson of the Centre for Public Policy at the Indian Institute of Management Bangalore, and former Director, Central Board, Reserve Bank of India. 1978, laying the foundation for the nascent Information Technology (IT) industry to emerge as a global force. The government also opened up professional education to non-governmental bodies, enabling the state to produce large numbers of engineers and doctors. Public-private partnerships have resulted in world-class infrastructure such as the Kempegowda International Airport serving the state capital Bengaluru. The State Government has established industrial areas and promoted clusters across the state and provides valuable incentives to locate there. Together with the Government of India, it is establishing National Investment Manufacturing Zones in Tumakuru and Kalaburagi. The national Smart Cities programme will include Belagavi, Davangere, Hubballi-Dharwad, Mangaluru, Shivamogga and Tumakuru in the state. A helicopter manufacturing plant is coming up at Gubbi, close to Tumakuru. A new Indian Institute of Technology will soon come up at Dharwad. Britain and Japan are investing in two mega industrial corridors, the Mumbai-Bengaluru and the BengaluruChennai, respectively. These will ensure that infrastructure and connectivity are accessible across the state. In addition to its renowned service sector strengths, Bengaluru has a thriving manufacturing ecosystem including the pioneering


RESURGENT KARNATAKA

Primed for growth

The festival of Dasara usually occurs in September/October and hails the triumph of good over evil. The Mysuru Dasara is amongst the grandest spectacles on earth with the Jambu Savari, a regal procession of about a dozen bedecked elephants.The procession has a long & rich history of more than 400 years. Seen here is an oil painting in the Amba Vilas Palace of a Dasara procession of yore. Photo: Asha Thadani for the ‘Marvels of Mysore & more’ Peenya industrial area and Bidadi, which hosts Toyota. The garment sector thrives across the city. The highway between Bengaluru and Hosur in Tamil Nadu hosts a range of world-class service and manufacturing plants. On the Bengaluru-Chennai highway, the latest industrial park to take off is in Narasapur in Kolar district. Automotive giants like Honda and Scania and British pharmaceutical giant Abbott have set up state-of-the-art factories there. At the diametrically opposite northwestern end of the state, another education-focused city, Belagavi, now has a flourishing aerospace Special Economic Zone promoted by Aequs and Magellan. In the southern heartland, Hassan is emerging as a major textile hub, triggered by Himatsingka Seide’s `1,000crore ($147.6 million approximately) plant. Reaffirming its commitment to Karnataka, this vertically integrated home textile firm is now adding another `1,300-crore ($192 million approximately) investment that will backward integrate into

spinning and diversify its high-class product range that it sells worldwide. On the southwestern coast, the districts of Udupi and Dakshina Kannada have their own economic drivers. The birthplace of multiple national banks over a century ago, they also host a thriving educational ecosystem. Infosys and other IT majors have tapped into talent pool this by setting up development centres in Mangaluru. Mobile-game development startups like Robosoft have emerged in Udupi, adjoining the privately promoted Manipal University. Resources: natural and heritage Karnataka has a diverse range of natural resources and strengths. Fisheries flourish on the coast. Wineries are emerging around Bengaluru and Vijayapura, boosted by the proactive government wine policy. Horticulture, dairy and sericulture thrive across the state. Wind energy and solar energy have 9


RESURGENT KARNATAKA

Primed for growth highest civilian honour, the Bharat Ratna, uniquely for their contributions in fields apart from politics. Legendary engineer and administrator Sir M Visvesvaraya, who was Diwan of Mysore, industrialised and modernised the state even while establishing dams, universities and banks. Nobel laureate Sir CV Raman established centres for scientific research in Bengaluru. Recently, the award went to CNR Rao, a leading scientist and institution builder. The legendary Hindustani classical singer, Pandit Bhimsen Joshi, whose music took us to sublime heights, is another Bharat Ratna. Such people with outstanding accomplishments are Karnataka’s role models.

Sir M Visvesvaraya was an engineer, a statesman, a visionary & the Diwan of Mysore state who paved the way for Karnataka’s growth as a modern state. Photo: VITM tremendous potential, while hydropower is abundant in the state’s numerous rivers. Mining is reviving in the iron orerich Ballari region. Karnataka’s commitment to preserving the ecological hotspot of the Western Ghats led it to close the Kudremukh mines. Such conservation efforts have been rewarded, with Karnataka hosting 406 tigers, the highest number of this majestic, endangered species nationally. The hills of Kodagu and Chikkamagaluru are famous for coffee estates. Their picturesque settings have led to a boom in homestays and resorts for tourists. Mysuru, famous for its Dasara festival and palaces, continues to be among India’s top tourist destinations. The awe-inspiring ruins of Hampi and the temples of Pattadakal are already UNESCO heritage sites, along with the Western Ghats. In line for this global recognition are the temples of Belur-Halebid and the monuments of Srirangapatna and the Deccan sultanate, in Bidar, Kalaburagi and Vijayapura. Overall, when it comes to tourism, the state is blessed with immense possibilities. Reverence for professionalism Many citizens of Karnataka have been awarded India’s 10

Indeed the state’s people revere outstanding professionals across fields. One of the Indian Army’s two Field Marshals, KM Cariappa, hails from Karnataka’s Kodagu region. Kannada literary giants, including the 8 Jnanpith award-winning writers, are household names. Karnataka’s sportsmen like badminton world champion Prakash Padukone and Indian cricketers Javagal Srinath, Anil Kumble and Rahul Dravid are highly regarded for their discipline and sportsmanship. Karnataka has been home to outstanding musicians, and is a confluence of both Hindustani and Carnatic classical traditions. The Kannada theatre scene is vibrant and the film industry has a history of high art as well as breakthrough popular hits like Mungaaru Male. Overall, the state has a reputation as a haven for merit, where talent can flower and people have a quiet self-confidence, untouched by arrogance. Knowledge economy Starting with the Indian Institute of Science established over a century ago by Jamsetji Tata and the Maharaja of Mysore, Karnataka has built a strong knowledge economy. Public sector institutions like the Indian Space Research Organisation, Hindustan Aeronautics, Bharat Electronics, etc., helped Bengaluru emerge as a hub for intellectual talent. Numerous engineering colleges generated the graduates who would help Indian and multinational companies scale rapidly. Bengaluru has become a worldwide brand for high-quality outsourcing. Infosys, Wipro and other Information Technology (IT) companies helped Karnataka’s IT sector provide employment to millions, thus attracting talent from across India. Any multinational of consequence has a development office in Bengaluru. Cisco has even established its second global headquarters here. Software exports from the state have crossed `50,000 crore ($7.3 billion approximately). The IT sector’s success has unleashed growth


RESURGENT KARNATAKA

Primed for growth

Some of the founders of the Bengaluru-based IT giant Infosys including Narayana Murthy, Nandan Nilekani, K Dinesh and S Gopalakrishnan are active philanthropists. Some of them are seen here commemorating the company’s 25th anniversary by remotely ringing the NASDAQ opening bell from India on July 31, 2006. Photo: Infosys in IT-Enabled Services ranging from call centres to design outsourcing to animation. Technicolor’s Bengaluru centre has creative artists whose VFX (visual effects) for Prometheus and Life of Pi led to an Oscar nomination and an Oscar award, respectively. Research and development is another domain which has led to companies flocking to Karnataka. Aerospace majors like Airbus, automotive giants like Daimler Chrysler and GM, pharmaceutical companies like Astra Zeneca, and the innovation-focused 3M all have tapped the state’s brainpower with their research centres in Bengaluru. GE’s Jack Welch Research Center in Whitefield is one of three worldwide. It has produced numerous patents by connecting its research team to product lines. In the public sector, the National Centre for Biological Sciences and the Jawaharlal Nehru Centre for Advanced Scientific Research are at the forefront of scientific discovery. Spirit of entrepreneurship The success of IT pioneers at home and of Indians in Silicon Valley has unleashed the spirit of entrepreneurship among

India’s professionals. Infosys represents the iconic inspirational story of a bunch of engineers who started with practically nothing but used their brains to build a billion-dollar enterprise. By pioneering employee stock ownership, they spread the wealth they created and seeded other entrepreneurs. Kiran Mazumdar-Shaw’s is another inspiring story of a woman who started a biotech firm in her garage, which is now the billiondollar Biocon. These stories have helped Bengaluru become India’s startup capital. Even the café chain where youth congregate, Coffee Day, recently had an Initial Public Offering. Today, Karnataka’s professionals marry knowledge with business savviness across domains. In the education sector, Manipal University first attracted students from the Indian diaspora. It has gone on to establish campuses internationally. In healthcare, Narayana Hrudayalaya, which tapped its income from the rich to provide care to the needy, has set up Narayana Health City hospital complex in the Cayman Islands in the Caribbean to reach out to patients in North America. Its recent IPO was oversubscribed 8 times. 11


RESURGENT KARNATAKA

Primed for growth

The cosmopolitan nature of Karnataka’s people, combined with the vibrant, open, multicultural ethos of Bengaluru, have made the city a magnet for youth intent on being part of startup ventures. All elements of a good startup ecosystem – incubators, angel and venture funders, intellectual property experts, and conferences and events - abound. In terms of tech talent, Bengaluru’s critical mass attracts even more of the creative class. Globally, the city is ranked highly as a startup hub and has investors flying in to fund potential unicorns, with venture capital giants like Japan’s Softbank in the lead. Unique in giving back Karnataka’s IT billionaires have set an exemplary trend in giving back to society. Foremost has been Azim Premji of WIPRO. He became India’s leading philanthropist when he donated over `50,000 crore of his wealth to the Azim Premji Foundation that is doing significant work in education and development. He has also established the Azim Premji University in Bengaluru. The founders of Infosys, including Narayana Murthy, Nandan Nilekani, K Dinesh and S Gopalakrishnan, have all been active philanthropists. The Nilekanis have contributed to think-tanks, NGOs and institutes focused on urban governance and public policy. At the same time, they have invested in a range of startups, including those with an ambition to transform primary education through the innovative use of technology. They have also contributed to Karnataka’s thriving NGO sector and participated in active citizen engagement with governance. Hidden gem: Karnataka as capital of social enterprise Karnataka has also become a global hub for impact-focused businesses. These aim to improve the conditions of people at the bottom of the economic pyramid in sectors like financial inclusion, healthcare, education, clean energy, agriculture, and women empowerment. Since 2005, 30 percent of all impact businesses in India that have received venture capital are based in Karnataka. In 2007, Eric Savage, an American, moved to Bengaluru to set up Unitus Capital as an investment bank for social enterprises. It has already raised `9,480 crore ($1.4 billion approximately) for companies that provide essential services at a low cost, organise fragmented markets, enhance livelihoods, or innovate in clean technology. 12

Azim Premji, Chairman of Wipro Ltd, a global IT company headquartered in Bengaluru, is India’s leading philanthropist and has donated more than `50,000 crore to the Azim Premji Foundation that works in the areas of education and development. Photo: Wipro Unitus Capital has proven this sector’s business viability as `4,740 crore ($700 million approximately) of debt has already been paid back at market interest rates, and 28 investor exits have taken place profitably. The social enterprise ecosystem in Karnataka includes organisations such as Villgro, the Gates Foundation, Ashoka, and the Deshpande Foundation. These support social entrepreneurs with advice, mentoring, funding and access to networks. The Deshpande Centre for Social Entrepreneurship at Karnataka University, Hubballi, has even launched a pioneering Master’s degree programme in Social Entrepreneurship. Looking forward Overall, Karnataka has a unique, unparalleled appeal. It ushered in India’s technology boom, enabled by a facilitative government. It has a welcoming, cosmopolitan culture that attracts the creative class and rewards quality work. Its empowered citizens contribute to improving governance. Together, the government and citizenry have created an environment of achievement and entrepreneurship, enabled by resources, compassion and talent. The state possesses a youthful energy; hopeful, ambitious and eager to soar. There is no doubt that it will soon exceed expectations. Karnataka is truly where the future will be made.


INDUSTRY OVERVIEW

Aerospace AEROSPACE At the heart of a bullish market

RESURGENT KARNATAKA

Airbus has a longstanding industrial relationship with India and Karnataka. The public-sector HAL produces half of all A320 forward passenger doors. Through its Tier-1 suppliers, Airbus also works directly with Indian companies in designing and manufacturing aerostructures. Dynamatic Technologies manufactures complex, machined components and assemblies (FlapTrack Beams) for the A320 family and AEQUS makes sub-assemblies and detail parts across Airbus programmes. Infosys is among the companies that have several ongoing engineering projects for various aircraft programmes, including the A380 and A350 XWB. Sonovision-Aetos is a dedicated centre for Airbus Technical Publications. The Bengaluru-based centre of Airbus India Engineering focuses on the development of advanced capabilities, which are critical factors in the design and production of high-performance aircraft such as the A380, A350 XWB and A320neo. The Airbus Training India in Bengaluru provides maintenance training to people from airlines in India and neighbouring countries. Photo: S Ramadier

Karnataka sits at the epicentre of India’s aerospace industry that appears to be in a rather bullish phase. Most industry experts say that there is tremendous potential for growth in this sector, riding on growing demand which is being generated both from the commercial aerospace industry as well as defence industries. India’s aerospace market is one of the fastest growing markets in the world with an expanding consumer base comprising airlines, businesses and High Net-worth Individuals (HNIs). The country is seen as a one stop source for all required services, from design and development to manufacturing, maintenance and repair operations. At a planning and implementation level, both micro and macro 16

factors have been instrumental in bringing about this demand upsurge. Strong national economic growth over the last two decades has resulted in the rapidly growing demand for domestic aircraft. Additionally, the liberalisation of civil aviation policies has reduced industry barriers. All of these are working in favour of Karnataka, which came to dominate the aerospace scene with the establishment of Hindustan Aeronautics Limited (HAL) in 1940 in Bengaluru. India’s strong domestic manufacturing base, most of which is housed in Karnataka, the cost advantages that the country has to offer, liberal SEZ (Special Economic Zones) laws that provide attractive fiscal benefits for developers and manufacturers, and a well-educated and skilled labour force have all gone into making


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

India a high-growth player in the aerospace and aviation market. With India’s Aerospace and Defence (A&D) sector at an inflection point, experts see a great growth potential in the sector over the next decade. Estimates put the A&D expenditure on aircraft acquisitions at around `5 lakh crore ($ 75 billion approximately) over the next 10 years. India’s Maintenance, Repair and Overhaul (MRO) segment is estimated to reach `1,300 crore ($ 196 million approximately) by 2020. Given the labour-intensive nature of the MRO segment, several leading MRO companies, Original Equipment Manufacturers (OEMs) and international airlines have outsourced heavy-maintenance work to India, adding to India’s possible growth potential and generating employment. Advantage Karnataka Karnataka’s aviation story has reached global proportions. HAL paved the way for the setting up of successive defence publicsector undertakings and R&D institutions in the state like Bharat Earth Movers (BEML), Bharat Heavy Engineering (BHEL), Gas Turbine Research Establishment (GRTE), National Aeronautics (NAL), Defence Research and Development Organisation (DRDO), Aeronautical Development Agency (ADA), Aeronautical Development Establishment (ADE), and Indian Space Research Organisation (ISRO), among others. Besides the big presence of public-sector enterprises, many international private players have also invested in the state’s aerospace sector such as Boeing, Airbus Group, GE Aviation, BAE Systems, Safran, Honeywell, and UTC Aerospace. New companies are also establishing operations on the city’s outskirts, in key industrial belts surrounding Bengaluru and in North Karnataka. For instance, Aequs (formerly QuEST Global) established a manufacturing and precision engineering SEZ in Belagavi on 300 acres of land in 2009. The objective was to focus on aerospace components and sub-systems by building a precision engineering and manufacturing end-to-end ecosystem (supply chain cluster). There are also numerous joint ventures between domestic and foreign companies, providing opportunities for knowledge sharing and technological benchmarking. HAL has signed

Aerospace

three joint venture agreements: first, with Snecma, a global manufacturer of jet engines for commercial aircraft, to produce jet engine components; second, with Rolls Royce, which resulted in a state-of-the-art facility producing compressor shroud rings for aero-engines, and third, with Airbus, to manufacture passenger doors for Airbus A320 and A321. Well-developed ecosystem The state offers a number of advantages that make it the preferred destination for most investors in this sector. Some of the broad benefits are: • C  ompetitive edge for Karnataka deriving from relatively low-cost aerospace manufacturing and MRO activities vis-à-vis Asia and the Middle East region. • P  resence of large defence PSUs, including the Defence Avionics Research Establishment (an arm of DRDO), which was established in 1986 in Bengaluru aimed at enhancing the operational capabilities of Indian Air Force through modern technologies. • E  xpertise in aerospace with over 2,000 SMEs which execute niche subcontracting work like component manufacturing, tooling and testing equipment, and assembling for the defence PSUs. • P  resence of a number of top companies in Information Technology/IT-Enabled Services and electronics hardware, many of which are a part of the supply chain for the aerospace sector. • B  engaluru’s leadership in heavy manufacturing due to the presence of innumerable PSUs, software companies, aerospace companies, telecommunications companies, machine tools manufacturers, heavy equipment manufacturers and defence establishments – all of these can serve as crucial linkages in the aerospace industry’s production process. • M  aximum number of engineering graduates in the country, with a large number of them being employed in IT, design and engineering – this provides an advantageous position to the state with reference to labour skill sets. • P  resence of scientific and academic institutions such as the IISc enables the development of qualified technical experts who can be absorbed into aerospace operations. • C  onvenient location, far away from potential conflict-prone neighbouring countries, strategically connected through

17


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Aerospace

Tejas, India’s Light Combat Aircraft (LCA), together with its variants, is the smallest and lightest Multi-Role Supersonic Fighter Aircraft of its class. This single-engine, Compound-DeltaWing, Tailless Aircraft is designed and developed by ADA, with HAL as the principal partner along with DRDO, CSIR, BEL, DGAQA, IAF & IN to meet diverse needs of the Indian Air Force and Indian Navy.

Photo:Rahul Devnath

airports, rail and roads. • T  he state is also close to industrial hubs like Pune, Hyderabad and Chennai. • W  ork ambience is conducive with a non-unionised working atmosphere. And, of course, the state’s fabled weather and cosmopolitan lifestyle.

investment worth `36,000 crore ($ 5.4 billion approximately), creating 60,000 employment opportunities and increasing the contribution to GSDP to 32 percent. The overall policy objectives as outlined by KAP 2013 – 2023 are: • M  ake Karnataka a preferred global destination for manufacturing of aircraft, aircraft systems and subsystems, assemblies and components

Owing to all the reasons mentioned above, Karnataka has been able to consolidate its pioneer status and continues as a natural choice for investors and stakeholders. The state intends to take advantage of the promising scenario and is projecting itself as the aerospace hub for Asia in the next five years and as one of the top global aerospace and MRO destinations by 2023.

• C  reate an ecosystem comprising infrastructure, education and R&D to make the state a conducive hot spot for aerospace industry.

Aerospace Policy To channel and provide a direction to the state’s efforts to capitalise on its dominance in the aerospace sector further, the government introduced the Karnataka Aerospace Policy 2013 – 2023 (KAP). KAP 2013 – 2023 is divided into two five-year phases. Phase 1 (2013-18) aims to attract investments worth `24,000 crore ($ 3.6 billion approximately), create 40,000 employment opportunities and increase the contribution to the state’s Gross Domestic Product (GSDP) from 28 to 30 percent.

• B  uild a ready-to-employ human resources pool for the industry

Phase 2 (2018-23) aims to improve upon Phase 1 by attracting 18

• D  evelop Bengaluru as a magnet for global Tier-1 suppliers within the aerospace industry • Make Karnataka one of the leading MRO hubs in Asia

• S  trengthen R&D for achieving innovative and cuttingedge technologies • T  o create enhanced facilitation mechanism for the ease of doing business through an industry-friendly policy framework. Growth Drivers In this regard, the state has identified the following sections and segments of the industry that could be potential and key growth


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Aerospace

Aequs SEZ in Belagavi, India’s first precision-engineering special economic zone, has developed into an integrated aerospace manufacturing ecosystem that houses several interrelated capabilities that are either unavailable in India or are difficult to come by in one location. Photo: Aequs

drivers, if nurtured properly.

natural choice for locating relevant capabilities.

Maintenance and Repair Operations (MRO): India’s MRO segment is estimated to reach `1.7 lakh crore ($ 2.6 billion approximately) by 2020 especially as aerospace majors prefer to have their aircraft serviced locally to reduce costs and on-ground time, thus achieving faster turnaround times and large savings in operating costs. Karnataka offers tremendous potential for MRO activities and ground-handling, and the manufacture of ground support equipment, with major MRO players like Jupiter Aerospace and Taneja Aerospace being based out of the state. Currently, overhaul of some of the defence aircraft in India is almost wholly carried out by HAL.

IT, Design and Engineering Services: Bengaluru is the technological capital of India and the fourth-largest technological cluster in the world with a huge set of institutions of higher research and a talented set of skilled labour. Many global aerospace majors have already set up their research bases in Karnataka.

HCL’s acquisition of Axon Consulting, which has strengths in aviation MRO, is further bound to reflect in the development of MRO capabilities within Karnataka. There are future proposals to create world-class MRO facilities in Bengaluru (near the current international airport and Mysuru on the public-private partnership (PPP) model. MRO is one segment which has not yet been completely explored and is bound to grow by leaps and bounds, as the state offers a

Since 2007, Boeing has been working together with IISc, Wipro and HCL, as a part of the Aerospace Network Research Consortium, India’s first industry-academia consortium. Airbus Group (formerly European Aeronautic Defence and Space Company or EADS) started research operations in Bengaluru in December 2009. Indian players have also made strides in the IT segment of aerospace sector. Infosys Technologies helps build aircraft components and systems for customers like Boeing and Airbus; Wipro helps build electronic warfare systems, radars, aviation, electronics and flight simulators for US defence contractors such as Lockheed Martin and Northrop Grumman, and has tied up with Britain’s largest defence manufacturer, BAE Systems, to build sub-systems for aircraft engines that power business 19


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

jets; HCL Technologies is a strategic partner for Boeing’s Dreamliner programme. Aircraft Manufacturing: The state is home to some of the aerospace heavyweights – both national and international. HAL, NAL and ADA are the major Indian players, and Boeing, Airbus, GE Aviation, and BAE Systems are the major foreign ones which operate out of Bengaluru.

Aerospace

An Aerospace Common Finishing Facility (ACFF) will be set up in Bengaluru to facilitate MSMEs in the Aerospace Sector and an Aerospace University has been planned by HAL in Davangere and Chitradurga. Along with training institutes and research centres, the University will have a flying training school on the campus. The university and the flying school will be set up as a joint venture between the state and interested investors.

With the state Aerospace Policy also providing for manufacturing clusters at Mangaluru and Belagavi, the state is poised to grow exponentially as a global aerospace and defence manufacturing hub over the next decade.

The Karnataka Aerospace Research & Innovation Centre, planned to be constructed on PPP model, is envisaged as a state-of-the-art laboratory with incubation centre for future aerospace engineers and entrepreneurs. The state government will give necessary support to make it a world-class aerospace research hub. Under this, necessary funds will be made available to colleges, as one-time assistance of up to `5 crore ($ 750 thousand approximately) each, so that infrastructure can be upgraded in a time-bound manner. The government will also encourage institutes to set up world-class laboratories in partnership with industry.

Enhancing Human Resource Capability: KAP (2013 – 2023) provides for establishment of specialised training and finishing institutions by the private sector. It provides for setting up universities, training institutes and finishing schools which would churn out 5,000 industry-ready personnel annually.

The government’s determination towards enhancing the human resource potential of the state is also evident in its proposed scholarships for outstanding students to encourage them to take up doctoral and post-doctoral research in aerospace engineering and aircraft design.

There are also numerous joint ventures between domestic companies and foreign companies which provide opportunities for knowledge sharing and technological benchmarking. Such enterprises go on to show the expertise held by the state in the manufacturing segment.

20


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Aerospace

Industry-friendly Government Karnataka has a Single-Window Clearance Committee and the State High-Level Clearance Committee for investments greater than `50 crore ($ 7.5 million approximately) with the objective of clearing proposals speedily.

Bangalore Aerospace Park (BAP) and Bangalore Aerospace SEZ (BASEZ) These are being developed in Devanahalli through a Special Purpose Vehicle (SPV) that will be constituted with members from government, industry and professional bodies.

Given below are some further provisions in the Aerospace Policy aimed at emboldening the state’s investor-friendly image:

The SPV will be in charge of managing and maintaining these parks which will have facilities like manufacturing area and SEZ, MRO centres with a direct access to the BIAL runway, testing centre, hardware/embedded technology centre, technology innovation centre including a certification/calibration centre, common facility centre and housing facilities.

• 1 00 percent exemption from electricity duty for aerospace enterprises for a certain number of years depending on the nature of the enterprise • 1 00 percent Entry Tax exemption for new industries in the aerospace sector. In case of Bengaluru Urban, Bengaluru Rural and Ramanagara districts, this incentive is to be offered for enterprises coming up in the designated Aerospace Parks only. • E  xemption from stamp duty and concessional registration charges

PPP The government will focus on the creation of world-class infrastructure for the aerospace sector. It proposes to establish more aerospace parks at Mysuru, Hubbali, Mangaluru and Belagavi in phases depending on the demand from industry.

• A  nchor Unit Subsidy of `500 lakh ( $ 750 thousand approximately) shall be offered to the first 10 aerospace OEM enterprises with a minimum investment of `50 crore ($ 7.5 million approximately) and direct employment of 100 persons during the policy period.

These parks will have comprehensive infrastructure like road, captive power generation, water supply, facilities for R&D, finishing schools, housing and healthcare for employees – enabling the units to operate on ‘plug and play’ basis.

• R  eimbursement of up to 75 percent of the Central Sales Tax (CST) paid by enterprises in the first five initial years of functioning • E  stablishment of an Aerospace Venture Capital Fund (KARAVEN), with a corpus of `200 crore ($ 30 million approximately) and with the participation of the government (to the extent of `50 crore ($ 7.5 million approximately), financial institutions and other investors, is expected to foster further innovation in the aerospace sector. The fund will enable SMEs to bring in required equity, thus enabling ease of borrowings for various new projects and for scaling up existing projects. • E  stablishment of three clusters: South Cluster (Bengaluru, Mysuru and Mangaluru), Central Cluster (Davangere and Chitradurga), and North Cluster (Belagavi and Bidar). This cluster approach is expected to promote knowledge sharing while also assisting in reducing costs by allowing for economies of scale. It envisages inclusion of enterprises, financial providers, suppliers, service providers, and common facilities such as testing laboratory at potential locations of the state.

Development of such parks would be encouraged through the PPP model. There are plans to persuade the Union Ministry of Civil Aviation and Defence to open up the defence airports at Bidar and Karwar for civil aircraft. Additionally, the state plans to develop airstrips and helipads at all district headquarters and important industrial destinations which do not have air connectivity. Airstrips are proposed to be built at Davanagere, Chikkamagaluru, Udupi, Madikeri, Gokarna, Chitradurga, Bagalkot, Haveri, Gadag and Kollegal. SME Focus Enhanced incentives will be offered to SMEs to provide them with a level-playing field and make them competitive. SMEs in the aerospace sector are to get preference in allotment of land in designated aerospace parks with at least 30 percent to 40 percent of the land reserved for them.

21


RESURGENT KARNATAKA

INSIGHTS

Public sector HAL (Hindustan Aeronautics Ltd) has been the flag-bearer of India’s aerospace programmes for several decades, a monopoly now being challenged with more players joining the sky party. While Bengaluru is often branded as the aviation capital of India, many government and private firms are spreading their wings across the state, making Karnataka possibly one of the most favoured aerospace destinations in India. A number of homegrown programmes are taking wing in Karnataka and a robust aerospace entrepreneurship network is also being established, signalling good times ahead. Even as public and private companies in the A&D (aerospace & defence) sector rapidly ramp up their investments, industry experts champion more collaborative ventures and seek enhanced infrastructure which would help charter a flight-path that would make the state truly the hub of A&D sector of India.

Aravind Melligeri is Chairman & CEO of Aequs (formerly QuEST Global Manufacturing) that specialises in precision machining and special processing for the aerospace, automotive and oil and gas industries. Aequs’ manufacturing facilities are located in Bengaluru, Belagavi, and Houston. He says that leveraging skilled workforce and helpful government policies would boost commercial aerospace activities.

22

Aerospace

What factors do you consider while making investment in a new facility and which of these factors attracted your company to invest in Karnataka? We need to consider several factors before making investment in a new facility, such as infrastructure, government policies, site location, proximity to airports and ports, availability of skilled manpower, raw material, power and water. When we were to evaluate locations for setting up our manufacturing business in a SEZ, we had considerable pressure from investors to go to Gujarat and set up business in an existing SEZ, but we chose Belagavi in Karnataka. In Belagavi, we had to take harder steps and make larger investment to set up SEZ and then establish our aerospace ecosystem for manufacturing. This was done because of our personal connection with the state and also we knew that quality of the manpower was one of the best in the country and very trainable. Is there further scope for improving the state’s strength? The Government of Karnataka has decided to focus on and promote the aerospace sector, given the inherent advantages enjoyed by the state. It needs further help in the following areas: Electricity: There is a need to improve the uptime to 100 percent at least in designated zones to make sure the aerospace business can reduce capital to achieve the same. Today, we run machines on UPS and keep backup generator just to make sure we are able to meet our customer commitments. This impacts our competitiveness globally, as other countries with which we compete do not need to deploy this capital for utilities. Air connectivity: Air connectivity to Tier-2 and Tier-3 cities needs incentives and improvement. Also needed is an international airport in northern Karnataka – in Hubballi or Belagavi. Bengaluru-Mumbai manufacturing corridor: There is a need to promote and accelerate manufacturing along the corridor. There should be high-speed connectivity in this route. What other steps would be helpful for growth? Overall development cannot be achieved by focusing on a few sectors. We need to broaden our view towards industry. Apart from IT, the government and all stakeholders of Karnataka should work on exploring new avenues and industry sectors. Karnataka has rich natural resources and seashores, so it would be good to focus on mining and shipping industry. While


RESURGENT KARNATAKA

INSIGHTS

the growth in the state happened more owing to the ‘dollar trade’ and IT and ITeS sectors, the government can consider developing other industrial hubs. While aerospace as a segment already has a lead owing to the legacy of HAL, NAL and DRDO, opportunities in the commercial segment can be created by leveraging the skilled workforce involved in aerospace industry and support by government policies to boost the trade. We should promote infrastructure to deliver engine components at a range of `15,050/ kg ($ 225/kg approximately) instead of selling iron ore at `134/kg ($ 2/kg approximately), which means that we should be able to carry out close to `13,380/kg ($ 200/ kg approximately) of value addition in the state.

Gautam Maini, Managing Director, Maini Precision Products, is one of the new breed of private players in the A&D space, and counts public sector HAL as well as international players amongst its clients. Maini says that the aerospace policy needs more impetus to achieve its objectives. Has the Karnataka Aerospace Policy met expectations? Karnataka is the only state to have introduced an aerospace policy, and while its actions in building aerospace SEZs and cities are positive, the progress with respect to its implementation has been staggered. While a few of the promised facilities under the policy are in operation, more awareness about the availability of such schemes and incentives within and outside the industry would definitely provide an

Aerospace

impetus to the policy. More clusters should be announced with focus on specific functions involved in the aerospace industry, after due consultation with all the stakeholders involved. Each cluster must be strategically located and facilities should be made available in the surroundings for the functioning / development of such enterprises to ensure that the cost of operation of the enterprise is maintained at competitive levels. What additional support do the private sector companies in this sector need? The private sector has several infrastructural requirements. The aerospace cluster in Bengaluru Aerospace Park should give concessional land to the private projects. We need better road connectivity along with soft loans and grants for high technology capital investments. Getting certifications for processes and parts is a challenge for India-based suppliers. It is also a deterrent for OEMs to outsource some of their components to India, since approvals for parts/components made in India can sometimes take a long time and as a result, the project becomes cost inefficient. There is no dedicated body/institute for such certification and guidance in India. Karnataka can take the initiative here. Labour law needs reform and should provide for hire-and-fire, shutting down unviable industries and employment of contract labour. Single window clearance facility may be instituted for enterprises being set up in the designated aerospace parks/ clusters. As the state has sufficient expertise in the IT sector, a dedicated online portal may be introduced to channelize and ease the process of setting up aerospace enterprises. What has been your experience as an early entrant in A&D sector in Karnataka? We forayed into the aerospace sector in 2005 and have since developed several strengths including offset support with licenses, structured training for technicians and implementation of PLM software (AEROLEAN). We believe that the fungibility of our infrastructure enables us to use a blend of advanced machinery for high precision aerospace products, without incurring substantial additional operational costs or time. At the same time, advanced manufacturing processes developed for our aerospace sector also enable us to move up the value chain of specialisation and complexity in our automotive and industrial sectors. 23


RESURGENT KARNATAKA

INSIGHTS

Aerospace

partnership and support from the private industries in Karnataka and it is essential that the state government provide adequate support in terms of land, power, finance and tax holidays. The government should also consider setting up a think-tank of eminent retired aerospace personnel to resolve the technology challenges being faced by medium and small-scale industries. It should consider creating a ‘raw material-cum-components bank’s to support small scale private industries as many of them cannot afford the minimum order quantity from foreign sources

Dr. K Tamilmani, Director-General (Aero Cluster), DRDO, says that the private industries will have a major role to play in aerospace sector and suggests the setting up a think-tank of eminent aerospace personnel to resolve tech challenges of SMEs and MSMEs. In the changing environment, what role do you envisage for organisations like DRDO? The development in A&D sector has taken great strides in the last decade with the success of LCA, ALH and other upgrade programmes like the Jaguar and Mirage 2000. These successes are due to the collective effort of government organisations, Defence Public Sector Units and private industries. The emergence of a few capable private companies has helped in realising many high-tech aero products, and in future, private industries will have a major role to play in aerospace sector. Going ahead, DRDO will mainly focus on technology development through basic research. We are keen to integrate the private industries as a productioncum-development partner in our future programmes, and will assign the design and development of many of the high technology equipment to the private industries. The future design of various aero projects like Advance Medium Combat Aircraft and Ghatak will be modular in nature and these modules can be outsourced to the private industries for realisation. What are the key ingredients to ensure healthy growth? The success of future programmes at DRDO will depend on the 24

T Suvarna Raju, CMD, HAL, also stresses on the increasing involvement of the private sector as HAL gradually moves towards becoming an aircraft integrator with systems being sourced from private partners. What impact does HAL’s growth plan have on the state? We believe that there would be threefold increase in our helicopter production in the next 7 to 10 years and we need to plan accordingly. The Karnataka Government has allotted 610 acres of land in Tumakuru. In this green field facility, we have planned to take up manufacturing and MRO activities for Light Utility Helicopter (LUH) and other rotary wing platforms. These will lead to the creation of supply hubs for sheet metal parts, machining and electrical looms creating a direct and indirect employment in the region. HAL has taken up the design and development of medium


RESURGENT KARNATAKA

INSIGHTS

Aerospace

thrust engines. These design efforts would lead to enhanced production in the years to come. How would the increased collaboration with the private sector work? HAL has given a thrust to R&D activities, and the major platforms that are currently being designed and developed are Light Combat Helicopter (LCH), Light Utility Helicopter (LUH) and Basic Trainer Aircraft HTT-40. HAL is also engaged in the design and development of UAVs as it is one of the fastest growing segment in both military and civil applications. We have also partnered with international OEMs in the design and development of Fifth Generation Fighter Aircraft (FGFA) and Multirole Transport Aircraft (MTA). We are also working in partnership with DRDO, NAL, IITs and IISc towards selfreliance in the aviation field. We are building up our Intellectual Property portfolio, and filed over 1000 patent applications in last three years. While continuing our R&D efforts, we will gradually move as an‘aircraft integrator’ with systems being sourced from private partners. HAL will expand its ecosystem by developing Tier-1 and Tier-2 vendors. With the involvement of more private industries and outsourcing through the tiered level of supplier base, HAL’s future programmes will get a boost. How can Karnataka maintain its lead in the A&D sector? Considering, the healthy eco-system for aeronautics prevailing in the state, more innovation may follow in this sector in the coming years. In order for Karnataka to continue as the preferred investment location for aerospace sector, the simplification and streamlining of processes for land acquisition is important. Availability of robust infrastructure like land, roads, uninterrupted power and water supply would attract industries to invest in the state.

SK Sharma, CMD, BEL says the state stands to benefit as the public sector unit aims to become a full-fledged Lead System Integrator across various technology domains and design value chains. What are the exciting developments in BEL, and how are you transitioning up the value chain? BEL in association with the DRDO labs, is developing the next generation modern Radars (AESA-based), Surface to Air Missile Systems, Electronic Warfare (EW) suites for fighter aircraft and helicopters, Integrated EW systems for various terrains for the Indian Army, Software Defined Radios for the armed forces in addition to thermal Imaging sights for tanks and weapons. We are currently playing the role of a system Integrator and will continue to involve and play a collaborative role in developing the large private sector players and MSMEs in the growth path. BEL expects to further move up the value chain and become a full-fledged Lead System Integrator across technology domains and design value chain. Would you seek policy changes to help the growth of the A&D sector? Bengaluru faces competition from other cities such as Hyderabad, Chennai and Nagpur in the area of defence and aerospace manufacturing. These cities are actively promoting aerospace SEZs and are trying to attract foreign investment. 25


RESURGENT KARNATAKA

INSIGHTS

Aerospace

Karnataka can showcase multiple destinations within the state like Bengaluru, Mysuru, Belagavi and others as hubs for activities in the aerospace value chain, thereby assuming a larger share of potential business. While infrastructure facilities have improved in Karnataka, there is a need to develop more robust infrastructure in terms of land, quality power and water. Another issue facing the aerospace industry, particularly the MRO sector, is shortage of land. MRO units should be located close to airports, and streamlining land acquisition processes would be appreciated by industry. What investments does BEL plan that would benefit the state? BEL has been continuously investing and will continue to invest around `400-500 crore ($ 60-75 million approximately) in capacity enhancements and modernisation year on year and creation of new test facilities to help the Company to achieve the targeted growth, as per the business plan. The total expenditure on R&D as a percentage of turnover during 2014-15 was 8.2 per cent, which is one of the highest among the defence PSUs. We are in the process of setting up an integrated state-of-the-art Corporate R&D Center named Product Development Innovation Centre (PDIC), with an investment of `500 crore ($ 75 million approximately) with large infrastructure, resources and facilities at Bengaluru to keep pace with the changing technology trends, customer requirements and future business needs. We plan to develop several variants of the Akash Missile System that we currently make for the Indian Air Force and the Indian Army in collaboration with the DRDO and private companies. Major new initiatives such as Long Term Evolution (LTE)-based Military Networking solutions, Electronics Systems for Futuristic Infantry Combat Vehicle (FICV), Missile Containers, Training Simulators and Smart City Elements are expected to generate business in the coming years.

26

Naresh Palta, Member, CII-GoK Aerospace Taskforce Core Group, seeks more initiatives to improve MSME involvement. You seek radical policy changes changes. Why? The Karnataka Government has taken various initiatives for encouraging A&D sector, which are creditable achievement. But far more speed is necessary. CII envisions developing the entire Karnataka state into a strong aerospace hub. Therefore, we plan to work with the state government for radical policy changes. The foremost need is for the Government of Karnataka to fund aerospace ventures of MSMEs and support joint ventures with foreign A&D companies for a rapid ramp-up of technology. Industrial land in clusters at concessional rates for MSMEs is also a priority requirement. What are these changes? We need vibrant procurement process. The domestic A&D activities are gradually growing, but the MSMEs have still not been absorbed as major contributors. A large part of domestic business is from PSUs, DRDO and other government organisations. These organisations continue to be shackled with impractical procurement processes. Through its interaction with various stakeholders, CII strongly advocates transformation in procurement processes in government sector. The threshold values fixed for categorisation as MSMEs are not at all relevant in A&D sector due to higher investments necessary. These need to be enhanced at least five times to be of practical value. Rationalisation of taxation is also crucial.


RESURGENT KARNATAKA

INSIGHTS

Aerospace

                         

    !    "#    $  %    %  &  '% !           (  )             *$+  ! ,    %          )   %     -    )!

Aero India, the biennial air show in Bengaluru is the second largest in the world after the Paris Air Show.

Photo: Asha Thadani

27


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Aerospace


DYNAMATIC TECHNOLOGIES LIMITED

ENGINEERING CHANGE Dynamatic Technologies Limited designs and builds highly engineered products for Automotive, Aeronautic, Hydraulic and Security applications. With futuristic design, engineering and manufacturing facilities in Europe and India, we are able to meet customers’ exacting requirements on 6 continents. Our facilities are located in India (Bangalore, Chennai, Coimbatore, Nasik), United Kingdom (Swindon, Bristol) and Germany (Schwarzenberg). We also have sales offices across India and in North America, Europe & East Asia. With three design laboratories in India and Europe, Dynamatic Technologies is a leading Private R&D Organisation, with numerous inventions and patents to its credit. The Company and its Subsidiaries employ around 50 scientists and 500 engineers with expertise in Mechanical Engineering, Advanced Computer Aided Engineering, Materials & Metallurgical Engineering, Fluid Dynamics and Defence & Aerospace Research. We are geared towards providing innovative and creative solutions to our customers on a continuous basis. Every business process is built around the customer and this approach has, over the years, enabled us to grow at a sustained pace by forging deep and lasting relationships with all our stakeholders that are based on mutual trust and respect, and upon our capabilities in delivering complex technological solutions at economically viable price levels.

Dynamatic Park Peenya Bangalore 560058 India Tel : +91 80 2839 4933/34/35 Mob : +91 99866 95321 Email : shrikant.t@dynamatics.net

DTL AD FOR RESURGENT KARNATAKA 2016.indd 1

www.dynamatics.com

20-01-2016 06:41 PM


INDUSTRY OVERVIEW

Agro & FoodAgro & Food Processing Processing

RESURGENT KARNATAKA

India is one of the largest producers of oilseed crop in the world, and sunflower holds a premium position among oil crops. Karnataka accounts for nearly half the area under sunflower cultivation in the country, and it is mostly grown in northern Karnataka. Photo: Savita Rao

Go-to-market strategy Karnataka, the fourth largest state in the country in terms of geographical area, is one of the leading states in the development of agriculture and allied sectors. The rich biodiversity and 10 agro-climatic zones of the state are conducive to the cultivation of various food and horticultural crops. The presence of a 320-kmlong coastline has led to a thriving fisheries sector. The state ranks first in the production of coffee and raw silk, second in the production of spices, and is a leading producer of sugarcane, cocoa, coarse cereals and millets. One of the first states to adopt the Agriculture Produce Marketing Committee (APMC) Act, Karnataka has brought about much-needed reforms in the agriculture marketing sector. The state government, along with NCDEX eMarkets (formerly known as NCDEX Spot Exchange), has established a joint venture company named Rashtriya eMarket Services (ReMS) to bring in efficiency and transparency to agricultural marketing. ReMS 30

provides a unified market platform (UMP), brings in best practices, arranges assaying facilities, enables commodity funding to benefit all stakeholders and develops secondary markets to benefit primary market participants. In all, 100 major markets have been brought under this unified platform and farmers are provided with competitive prices. A total of 31 lakh lots of agricultural produce worth 13,593 crore have been traded. Around 36,000 traders have been issued with single unified licence, enabling them to trade in all APMCs in the state. Some of the innovative reforms brought by the Department of Agriculture Marketing are: • Implementation of an e-tender system through Unified Market Platform in the APMCs which will provide for a trading platform, material accounting, trade fulfilment, fund processing, document management, master data management reporting and data module.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

• D  eposits needed for direct purchase reduced from about `50 lakh ($73,756 approximately) to 1 percent of the total production of fruits and vegetables that are processed curently to `5 lakh ($7,375 approximately). • R  emoval of zonal restrictions to enable establishment of free markets under the private sector. • E  xemption of market fee for new agricultural produce processing industries for a period of 10 years. • P  rivate markets also will be considered as procurement centres for minimum support price (MSP) operations on case-to-case basis by issuing an executive order. • A  nnouncement of incentives like rebate in the payment of market fee (only 70 percent of the market fee) by the licensee operating the direct purchase centre for foodgrains, fibres, pulses, spices, etc. This provision is also available for contract farming arrangements for the purchase of commodities. However, the levy of market fee on perishables has been abolished. Over 60 percent of Karnataka is rain-fed and the state is heavily dependent on groundwater for irrigation. By focussing attention on dryland farming with watershed development and improving dryland productivitiy through the Bhoochetana Programme, the state has seen a significant increase in productivity and quality in food production over the last decade. Under the Bhoochetana Programme, micronutrients such as zinc sulphide, potassium, nitrogen and sulphur are supplied to farmers. The cropping pattern also has seen significant changes – from conventional food crops there has now been a shift to high-value plantation crops, fruits, vegetables and flowers. While productivity is booming, there is an explicit need to create supporting infrastructure such as supply chain management in the form of transporation, warehousing and cold storage. This is imperative to control issues related to scarcity, price fluctuation and waste. According to the National Bank for Agriculture and Rural Development (NABARD), Karnataka requires an additional storage capacity of 21.80 lakh metric tonnes (MT) by 2016. About 3 percent of the total produce is processed currently, and the state aims to process 10 percent of its total produce by 2020, and 25 percent by 2025. The State Government has taken many proactive measures, from creating a policy which integrates agribusiness and food processing to establishing food parks in 6 districts - Bengaluru Rural, Tumakuru, Shivamogga, Davangere, Vijayapura and Belagavi - and a food processing

Agro & Food Processing

Special Economic Zone (SEZ) in Hassan. Agribusiness in Karnataka Agriculture is big business in Karnataka, with agro-based industries spread across all 30 districts. The state has 54,905 processing units, with a total investment of `4,428 crore ($662.2 million approximately). The export of agriculture and processed food in the state grew at a compounded annual growth rate (CAGR) of 11.8 percent between 2010-11 and 2014-15. The export value increased from `982 crore ($146.9 million approximately) in 2010-11 to `1,534 crore ($229.4 million approximately) in 2014-15. Some of the big players in this sector are ITC, Nestle, Britannia, Parle, Nissin, Pepsico, MTR and Gujarat Ambuja. Horticulture Around 16 percent of the total cultivable area in the state is devoted to horticulture, out of which 45 percent is used for plantation crops, 23 percent for vegetables, 20 percent for fruits, 10 percent for spices, and 2 percent for flowers and medicinal and aromatic plants. Karnataka, the largest producer of coffee in the country, is a leader in other plantation and horticulutural crops, too. The state is one of the major producers of arecanut, coconut, chillies and tamarind, among other spices. Flowers such as jasmine, roses and carnations are cultivated. Karnataka is rich in fruits, too, finishing second in production of grapes, and third in mango and jackfruit. The state has 98 cold storage units, of which 90 are in private sector, 6 in the public sector, and 2 are co-operatives, but these handle processing of only about 1 percent of the total production of fruits and vegetables. Thus, there is an urgent need to improve cold storage and transporation facilities. Coffee Coffee is the largest plantation crop in the state in terms of production, and is grown in Kodagu, Chikkamagaluru and Hassan. The state grows both Arabica and Robusta varieties and is the leading producer in the country, contributing over 70 percent of the national total. According to the post-monsoon forecast for the year 2015-16 released by the Coffee Board of India, headquartered in Bengaluru, the state will have a total production of 253,340 MT, which is more than the production of 31


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Agro & Food Processing

names, with more Indians developing a taste for wines. Wine tourism and vineyard tastings have sprung up as spinoff businesses.

Source: Coffee Board of India. Kerala and Tamil Nadu combined. Karnataka accounted for 91 percent of the total coffee exports of the country in 2014-15. Apart from the traditional export market, domestic consumption of coffee has increased steadily, according to the India Brand Equity Foundation (IBEF). Several international and Indian coffee retail chains have come up in the country like Lavazza, Café Coffee Day, Costa, Gloria Jean’s Coffee, Coffee Bean & Tea Leaf, and Starbucks, which is a 50:50 JV with Tata Global Beverages. The Central Coffee Research Institute (CCRI) in Chikkamagaluru is a premier institution dedicated to researching best planting methods. With a research farm of 80.26 hectares, of which 51.32 hectares is devoted to Arabica and 28.94 to Robusta, the CCRI evolves strategies to increase productivity and improve quality of coffee. One of its most significant breakthroughs has been to discover a method to combat the deadly white stem borer, a parasitic beetle which thrives on Arabica plants. Wine Ranking second to Maharashtra in the production of grapes in the country, winemaking in Karnataka took off in 2007, with the establishment of the Karnataka Wine Board under the Karnataka Grape and Wine Policy. Since then, 17 new vineyards have opened up, concentrating mostly in the area around Nandi Hills near Bengaluru and in Bidar and Belagavi in north Karnataka. Today, some of the best wines in the country come from the state, with vineyards like Grover, Rico Wines, Hampi Heritage Vineyards, Soma Vineyards and KRSMA Estates having become household

32

Sugarcane Karnataka is one of the largest growers of sugarcane in the country and is the highest producer of sugar in India, after Maharashtra and Uttar Pradesh. There are around 60 active sugar mills spread across the state, which churn out about 13 percent of the total national production. The cane, which is crushed for molasses and sugar, is grown on 4.4 lakh hectares of land, especially in Mandya and the districts of north Karnataka. In 2014 -15, the state’s sugarcane farmers produced around 39.71 million tonnes of sugarcane - up from 37.9 million tonnes the year before. Sericulture Sericulture in Karnataka dates back to over 215 years, when the Mysore royal government started production near Channapatna in 1800. Karnataka produces 25 percent of India’s total raw silk. Sericulture is mostly concentrated in Mysuru, Kolar, Ramanagaram, Bengaluru Rural, Chikballapur and Kolar districts. The Results-Framework document for the Department of Sericulture aims to achieve a growth rate of 5 percent in production by extending sericulutre to new clusters for the benefit of the rural poor. The Central Silk Board is now seeking to extend and popularise regions in north Karnataka which are traditionally non-sericulture areas. The sector is in for an overhaul with the government aiming to improve quality through mechanisation and better technology, promote research, ensure price stability to cocoon producers through insurance and to strengthen trade and marketing institutions. It is hoped that such positive reforms will successfully increase the productivity to a comparable international level.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Agro & Food Processing

More than 70 percent of coffee is grown in Karnataka, and the state accounts for 90 percent of coffee exports. Fisheries & animal husbandry There are 8 fishing harbours and 88 fish landing centres along the 320-km Karnataka coastline. The brackish water area of 8,000 hectares is a rich source of shrimp, and 5.65 lakh hectares of inland water provides ample freshwater fish. The state was one of the pioneers in organised fishing, and was the first state to introduce mechanised fishing boats. Currently, there are 3,780 mechanised fishing boats, 6,978 motorised boats, and 8,119 traditional fishing boats operating along the coast. Fish production in the state increased by 16.5 percent during 2010-2014. Animal husbandry had a share of 20.27 percent in the Gross State Domestic Product (GSDP) of agriculture and allied activities in 2014-15. Livestock is an important source of income for the rural poor which helps supplement their earnings from agriculture. According to the ninteenth Livestock Census, Karnataka has 2.90 crore livestock and 5.34 crore poultry. The Government of India has declared the state as a rinderpest disease-free zone. Supporting infrastructure Water: Primarily a rain-fed state, monsoons generally last for

Photo: Aditya Mendonca

around 2 months with a normal rainfall of 1,138 mm. Agriculture in the state is heavily dependent on groundwater, the availability of which is estimated at 485 thousand million cubic feet (TMC). The state accounts for about 6 percent of India’s surface water resources; there are 7 river basins through which the tributaries drain the state. The yield in these basins is estimated at 3,148 TMC at 50 percent dependability, and at 2,934 TMC at 75 percent dependability. Transportation: Karnataka is well-connected through water, road, rail and air. The state has 2 major ports, at Mangaluru and Karwar, and 10 minor ports. The government is planning to develop another port at Tadadi. About 4,990 km of National Highways and 2,077 km of State Highways run through the state, apart from other road networks, with a total distance of 49,905 km. Railways have a wide reach, too, and the state currently has 3,250 km of railway lines. The Government of Karnataka has proposed to the Centre to help establish more lines on a cost-sharing basis. There are 2 international airports, in Bengaluru and Mangaluru, and 3 domestic airports. The state proposes to develop minor airports at Kalaburagi, Shivamogga, Ballari and Hassan. 33


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Warehousing & logistics: Karnataka has a total storage capacity of 30.38 lakh MT of warehouse and 3 lakh MT of cold storage. The State Warehousing Corporation has leased 663 acres from the departments of Agriculture, Horticulture and Sericulture to construct warehouses with a total capacity of 12.5 lakh MT at a cost of 650 crore with grants received from the Rashtriya Krishi Vikas Yojana (RKVY) and NABARD. The government plans to delegate the operations and maintenance of these warehouses to the private sector on the public-private partnership (PPP) model. Research & Development: Karnataka has a strong base in R&D with the presense of leading research institutions like Central Food Technological Research Institute (CFTRI) and Defence Food Research Laboratory (DFRL) in Mysuru; and National Dairy Research Institute (NDRI) and Indian Institute of Horticulture Research (IIHR) in Bengaluru. The state government has set up 4 units of the University of Agricultural Sciences in Bengaluru, Dharwad, Raichur and Shivamogga; a University for Horticultural Sciences at Bagalkot; and a University for Animal Husbandry & Veterinary Sciences at Bidar. The government has also established a Biotechnology Centre which focusses on horticulture development, in Hulimavu in Bengaluru. The research topics cover the gamut from food science, post-harvest management, trasnsportation, preservation and processing to new varieties of seeds and cropping techniques. Flower auction Established in 2002, the International Flower Auction Bangalore (IFAB) is a pubic-private joint venture with the primary objective of auctioning high-quality cut-flowers of various crops in both domestic and international markets. IFAB deployed a ‘Dutch Auction’ system in 2009 aimed at providing equal opportunity to all bidders. The daily average volume of flowers auctioned in IFAB has gone up from 20,000 to 1,00,000 stems. Human resource & skill development Employment in the agro and food processing Industry demands highly specialised skillsets at both the workmen and supervisory levels. The employees need to be familiar with special requirements of the industry such as good hygiene 34

Agro & Food Processing

practices and maintenance of quality standards. This is particularly important for the MSME sector, which does not have the capacity to provide in-house training. The state provides encouragement through subsidies for technology business incubation centres for the MSME sector. To support the training and skill requirement of the agribusiness and food processing industry, the Department of Agriculture has 23 district agriculture training centres (DATCs), and the Department of Horticulture has 10 training centres across the state to train farmers and other stakeholders in enhancing production, improving productivity and quality of agriculture, horticulture and allied produces. Agribusiness & Food Processing Policy 2015 Created out of a need to integrate the agriculture, horticulture, animal husbandry, fisheries, food processing, agribusiness, warehousing and logistics sectors under a unified policy, this aims to develop simultaneously all these sectors, create employment opportunities, reduce post-harvest wastage and increase agricultural productivity and revenue. The policy will be implemented through the departments of Agriculture, Horticulture, Fisheries, Animal Husbandry, Cooperation, Commerce, and Industries. The policy lists out the following broad strategies to achieve its goals: • E  ncouraging investments in the supply chain infrastructure to reduce post-harvest loss. • S  trengthening linkage between processing enterprises and R&D institutes. • F  iscal incentives to set up focused industrial clusters and food processing parks in potential food clusters. • E  ncouraging adoption of quality certifications, green and clean practices, energy efficient measures. • D  eclaring the entire state as a single zone for availing incentives and concessions • P  rovide integrated and cost-effective warehousing and cold storage and other related logistics services to encourage more investment. • Increasing the marketability of farm produce by providing value-added services like assaying, grading, cleaning, labelling, trading platform and packing at warehouses/cold storages.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

• D  esign-specific training programmes to develop skills in the food processing sector with focus on plucking, grading and sorting, packaging, storing and processing. It also proposes to establish the following: Farmer-Producer Organisation (FPO): A conglomerate of small farmers to leverage collective strength and build bargaining power to access financial and non-financial inputs and services and appropriate technologies, reduce transaction costs, tap high-value markets and enter into partnerships with private entities on more equitable terms. Currently, there are 14 registered FPOs in the state, and 68 FPOs are under the process of registration.

Agro & Food Processing

Higher-level of processing and value-addition would help reduce wastage, promote crop diversification, ensure better return to the farmers, and increase employment and export earnings. Healthy growth of this sector is vital to addressing critical issues of food security and food inflation, along with providing wholesome and nutritious food to the people.

Seafood park: To utilise better the rich marine reserves of the state, the policy aims to establish seafood parks under the PPP model to help fishermen access technology such as preprocessing units of international standards, cold storage and packaging units. Spice park: A spice park will be set up in Haveri to develop Byadagi chilli. The park will function as an integrated operation for cultivation, post-harvesting processing, packaging and distribution. Private entrepreneurs can develop their own processing plants and the grower community can utilise these facilities to sell their produce at competitive prices. Facilitation cell: To introduce the concept of ease of doing business in this sector, an exclusive facilitation cell will be set up to assist entrepreneurs in the agricultural and the food processing sector by getting them requisite clearances and documents from the offices and agencies concerned. Group crop insurance scheme: A special insurance scheme will be introduced to safeguard the interests of farmers engaged in contract farming. As the backbone of Karnataka’s economy, the agriculture and food processing sector holds significant scope for investment and growth. The Karnataka Agribusiness and Food Processing Policy 2015 has set the tone by creating enabling frameworks and state-of-the-art infrastructure facilities for global technologies and innovative tools to generate higher returns to farming communities.

Karnataka is one of the largest growers of sugarcane and is the 3rd highest producer of sugar in India. Photo: Savita Rao 35


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

The climate in Karnataka ranges from hot tropical along the coast to tropical savannah in the south to semi-arid tropical steppe in the north. Thus, a range of crops are cultivated through the year in over 64 percent of the area.With increased focus on Agro and Food processing, experts say that this sector would be set for growth with the right technological inputs. With increased focus on Agro and Food processing, experts say that this sector would be set for growth with the right technological inputs.

Agro & Food Processing

What interventions could help Karnataka improve its footprint in the processed food industry? Karnataka is indeed well-endowed with plantation crops and dairy. Processed pickles (gherkins) is already a big industry. Pomegranate has been a recent surprise addition to our basket of products. Belagavi offers the best sugar recoveries in the country. Sun-dried tomatoes can be a substantial value-added product by rural households especially in north Karnataka. Cashew is another product our coastal belt can look at, especially on marginal lands. We need to ensure that crops grown in this state are processed here. For example, even though Hassan is a major potato producer, most processing happens further north (north India). Gulbarga is a large dal belt and yet not all the dal is processed here. In export of grapes as well as raisins, we are a distant second to Maharashtra. The fresh vegetable individually quickfrozen (IQF) industry has struggled to take off and needs regular power supply. Contract farming laws are needed, as their absence hurts the farmer and rural homesteads more than the industry.

Sai Ramakrishna Karuturi is Founder and Managing Director of Karuturi Global Ltd (KGL), the largest producer of cut roses in the world with production facilities in Kenya, Ethiopia and India, and an annual production capacity of around 550 million stems a year. The government should use satellite technology to predict crop output and help reduce farming woes, he says. What measures would help the farmers get proper pricing for their crops? The government’s administered price mechanism, or association guideline prices, as in the case of sugarcane or gherkins, is helpful in providing a baseline price for producers. Perishables like tomatoes and onions seesaw to both extremities. If the government can predict surpluses and shortages better with satellite technologies abundantly available today, a large part of the pain associated with farming can be reduced. Crop-spray advisory and nutritional support are areas where the Indian Council of Agricultural Research (ICAR) has technologies for well over a decade. 36

How could India, specifically Karnataka, increase its share in the global trade of processed food? We should emulate Thailand, which has the same raw materials like we have – rice, coconut, mango, etc. The mind-boggling value-addition is to be seen to be believed.


RESURGENT KARNATAKA

INSIGHTS

Agro & Food Processing

due to the rampant spread of the White Stem Borer pest. The Government of India is addressing this matter and it is hoped that a solution will be found. Labour costs make up over 70 percent of an Arabica farmer’s expenses. Unless rapid strides are made in mechanising coffee cultivation, labour costs will render Arabica plantations unprofitable. The Central and State Governments must play a major role in ensuring that coffee farming is mechanised as soon as possible.

Anil Kumar Bhandari is a coffee grower and President of the Indian Coffee Trust. He has been Chairman of Karnataka Planters Association and President of United Planters Association of Southern India. Quick measures to increase productivity of coffee estates are needed, he says. As the largest coffee growing state in India, how can Karnataka increase production? How could the state government help coffee growers, traders and exporters? The government can help producers increase productivity through funding research and ensuring technological upgrading. Increase in production in Karnataka could, in the foreseeable future, be only through increase in productivity. This is mainly because there is very little scope for expansion of the area under coffee, for two fundamental reasons: The first is that while coffee plantations in traditional coffee areas are exempt from the provisions of the State Land Reforms Act which imposes a ceiling on the size of agricultural holdings, no new agricultural land could be added, and hence, no new investment can take place for expansion. The second, and the more important point, is that the optimum altitude for coffee cultivation is 2,000 ft and more above sea level. Using that yardstick, almost all the land in Karnataka at these levels is already under coffee. New farms in lower altitudes will be less economical. Among the principal concerns of the coffee sector in Karnataka are the gradual disappearance of Arabica coffee as a product owing to pests and the high cost of cultivation. This is largely

What steps should be taken to address the farmers‘ annual problem of price fixation and payment for their crops? For a majority of our farmers, price discovery is a problem as much of their sales are farm-gate sales. While larger cities tend to have auction centres where farmers may bring their produce to a daily auction, such a facility is missing in rural areas away from larger cities. Auctions are the best methods for price discovery and fixation for farmers, and payments are immediate. More district-level auction centres must be created, otherwise the farmers are at the mercy of wholesale middlemen.

Dr S Philip Lewis is Managing Director of Lewis Natural Foods Ltd, a leading manufacturer and exporter of processed marine food. Small measures to curb bad catching practices and ensuring regular power supply would help marine food industry, he says. How could educational institutions help cater to the demand of the modern-day food processing industries? What steps can the state take to create additional 37


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

technology to accelerate the growth of the sector? R&D centres should provide specialised training and relevant teaching to help us meet world standards. We need to keep up with the growth of technologies – this is a continuous process. The government should be a catalyst in this process. Is Karnataka’s coastline successful in yielding sufficient marine production? What should be done on the coasts to improve marine food processing? We need better control on the catch that we get in our rich 320km coastline. Catching methods such as the mesh of codents (trawl net end position) kill juvenile fish and are depleting our resources. We can get better harvests if we allow them to grow. There is a real danger of a man-made famine in marine resource in 10-15 years. The government could ensure that our coastal resources increase with small adjustments in catching techniques. Our processing standards are world-class but the fish holds, ice and processing systems need better quality. How are agri-investment regions helping to boost investments and delivering to the stakeholders? Food processing zones should be set up in exclusive zones where other agencies do not interfere, and there should be adequate water, power and roads for containers to transport.

PC Musthafa is Founder and CEO of ID Fresh Foods, a fresh-food startup brand that has a pan-Indian and growing international presence. He is buoyed by the scope for growth in the food processing industry. What are the prospects of the processed food industry in Karnataka? The state offers several greenfield opportunities for setting up 38

Agro & Food Processing

agro-based and food processing industrial sectors. Several MNCs have established a footprint in the state owing to the abundant availability of raw material and also demand in the market. For ID, Karnataka is the leading market and is currently witnessing large growths in consumptionWe are now seeing huge shifts from unorganised sectors, which are dominated by low-quality and unhygienic products, as consumers are seeking health and hygiene along with great taste from the food industry. This trend will evolve into a more competitive and organised segment, dominated by high-quality manufacturing, innovative advertising and widespread distribution extending even to small towns and villages. How has technology contributed to the growth of this industry? Improvement in technology has resulted in improved practices in food processing, food security, food safety, and development of human resource. It has facilitated focus on nutritional and health factors for targeted segments of population. It helps keep our products fresh and helps us follow ‘just-in-time’ production. Which areas do you think India and the state of Karnataka need to improve to contribute more to the global processed food trade? Structured retailing and effective value chain along with setting up of integrated food parks will improve the share of Karnataka’s contribution to the global food processing industry. Adequate infrastructure, quality controls, better and sharper supply chain and better quality of ingredients are required to drive this. Processed food is a capital-intensive industry, and, as there are fewer numbers of producers in this specialised sector and exporters fail to achieve economies of scale. Despite all these problems, I strongly feel that this sector has a bright future and huge potential. There needs to be an effective supply chain for the sustained growth of this sector. What would help Karnataka improve its contribution to the global food processing industry? There needs to be added incentive for companies and individuals to develop greenfield projects. Leveraging Karnataka‘s strength in biotechnology to explore agri-biotech, by combining the opportunities in food processing with the R&D base of biotechnology, will ensure the state’s involvement in the global market.


RESURGENT KARNATAKA

INSIGHTS

Agro & Food Processing

11


RESURGENT KARNATAKA

12

INDUSTRY OVERVIEW

Agro & Food Processing


RESURGENT KARNATAKA

INDUSTRY Banking OVERVIEW

Banking

Microfinance is changing lives by reaching out to the under-served urban and rural poor. Acording to a report by India Ratings and Photo: Ujjivan Research, the sector is projected to expand at a CAGR of 24% over the next five years.

Balancing growth with inclusion

The banking sector in Karnataka has a moderately strong foothold when compared to other states in the country. The state ranks fourth (after Maharashtra, Delhi and Uttar Pradesh) in terms of aggregate deposit and gross credit holdings, where the state has stolen a march over its peers is in the demographic coverage. As on date, the population per branch in Karnataka is 7,748, which is far more than the national average of around 15,000 people per branch. Partly, it is the state’s legacy. Karnataka has been the birthplace of 7 of the country’s leading banks – Canara Bank, Syndicate Bank, Corporation Bank, Vijaya Bank, Vysya Bank (which became ING Vysya Bank and has now merged with Kotak Mahindra Bank), Karnataka Bank and State Bank of Mysore. For reasons not hard to find, most of these banks were founded in modern-day Dakshina Kannada district. Strength from legacy The Dakshina Kannada district, which includes large parts of the coastal belt, including Udupi and Mangaluru, along with Ballari

and the old Mysuru region, present-day Chamarajanagar district, had become banking hotspots in the early 1900s. Branch banking started here in 1923, and between 1906 and 1945, Dakshina Kannada became a cradle of 22 banks. In 1913, M Visvesvaraya, scholar, statesman and Diwan of Mysore from 1912 to 1918, founded Mysore Bank. Even before that, the state had been home to a host of agricultural banks in the late 1800s, which were primarily meant to extend agricultural credit to the poor farmers at cheap rates of interest to save them from moneylenders’ exploitation. During the nationalisation of banks under the administration of Prime Minister Indira Gandhi in 1969, 4 out of the 14 banks that had been nationalised were from Karnataka - Canara Bank (established in 1906) and Vijaya Bank (established in 1931) both originating from Mangaluru; Corporation Bank (established in 1906) and Syndicate Bank (established in 1925), both originating from Udupi. In 1953, Reserve Bank of India (RBI) opened its branch at Bengaluru. By 1976–1977, Grameen 41


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banks or Regional Rural Banks had been established. Meeting demand The growing demand for bank credit has propelled a rise in the number of bank branches in the state. The average increase of branches between 2013 and 2014 were 237 for rural areas, 382 for semi-urban areas, 146 for urban areas, and 171 in metropolitan Bengaluru. This is reasonably reflective of the growing aspirations and financial clout of semi-urban areas. Simply put, there has been an appreciable growth in the reach of retail banking across the state, aiding the process of inclusive growth. As on March 2014, the total number of bank branches stood at 9,366 - up by 11 percent from 8430 branches as on March 31, 2014. The lion’s share of branches belonged to the commercial banks which have 6,876 branches, followed by regional rural banks with 1,547 branches. District Cooperative Central Banks (DCCs) come in third with 672 branches, followed by Karnataka State Co-operative Agriculture and Rural Development Banks (KASCARD) with 201 branches. Today, Karnataka has an impressive number of public-sector banks – 26 in all, including 16 private commercial banks and 3 regional rural banks. Almost three-fourths of the total banking business comes from 7 commercial banks. The aggregate deposits of all the banks (including commercial banks, Regional Rural Banks and co-operative banks) stood at `5,25,425 crore ($ 79.3 billion approximately) at the end of March 2014, an increase of 14.5 percent year-on-year from `4,58,925 crore ($ 69.2 billion approximately). The advances outstanding on record were around `3,95,328 crore ($ 59.6 billion approximately), an increase of 14.63 percent year-on-year from `3,44,870 crore ($ 52 billion approximately). The creditdeposit ratio was higher for 2014 at 75.24 percent, marginally higher than 75.15 percent the year before. According to norms set by Reserve Bank of India, domestic banks need to provide 40 percent of the net bank credit to the priority sector. In Karnataka, there was a rise in priority sector advances by 12.1 percent, from `1,39,283 crore ($ 21 bilion approximately) in March 2013 to `1,58,455 crore ($ 24 billion approximately) in March 2014. Agricultural advances at the end of fiscal 2014 constituted 19.72 percent of the total advances, 42

Banking

surpassing the mandatory level of 18 percent, as did direct loans to agriculturists, which touched 15.85 percent of total advances against the stipulated 13.5 percent. However, an area of concern is a drop in credit disbursed by banks to the small and medium enterprises (SMEs). The advances to the sector have fallen from 19.12 percent of total advances in 2012-2013 to 14.43 percent at the end of fiscal 2014. In absolute terms, the advances have dropped by `8,903 crore ($ 1.3 billion approximately) from `65,953 crore in March 2013 ($ 990 million approximately) to `57,051 crore in 2014 ($ 860 million approximately). This reduction has partly been explained by the portfolio reallocation by State Bank of India to mid-market companies. It does not augur well for a state that is seeking to boost the MSME sector, where the demand for credit is ever-increasing and requires a stable and predictable flow of capital. Advances given to women as a percentage of total advances also remained very stagnant. Alongside, there is also the challenge of rising non-performing assets (NPAs), which the banking sector in the state and the government must work together to resolve. As of March 2014, there were 6,78,811 NPA accounts involving `15,563 crore ($ 2.3 billion approximately), accounting for 3.94 percent of total advances. Banking on inclusion The State Government has introduced a plethora of changes and set up numerous bodies to better the banking process and bring about more comprehensive financial inclusion. Some of the broad schemes, which are in existence, and some others, which will be implemented soon, are discussed below: • A  t the policy-level, the State Government is committed to launching and extending the Swabhiman campaign to provide banking services to all villages with population of above 1,600; using banking correspondents to extend the reach of the services; adopting the ‘one-district, many banks, one-leader’ approach; shifting to inter-agency operable technology. • T  he ‘one district, many banks’ programme is being launched on a pilot basis in Ballari, Chitradurga, Kalaburagi and Yadagir districts by adopting a service area approach under the lead bank scheme. The ‘one district, one bank’ model is being launched in Chamarajanagar (SBM), Mandya (Vijaya Bank) and


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Dharwad (Axis Bank) districts. • In 3,395 unbanked villages with a population above 2,000, banking facilities have been provided with 100 percent coverage. Another 23,126 villages with a population below 2,000 have been identified. Of the total 22,345 such villages, 18,939 villages have been covered up to September 2014.

Banking

backward areas and first-generation entrepreneurs. Till March 2014, the corporation has extended aid to the extent of 66 percent for small-scale industries, 54 percent for development of backward areas, and 51 percent to promote first-generation entrepreneurs.

• K  arnataka got an allocation of `900 crore ($ 135 million approximately) in 2013–2014 for implementing works under the Rural Infrastructure Development Fund. To select and prioritise the works for loan assistance from National Bank for Rural Development (NABARD), a cabinet sub-committee on RIDF has been constituted. Completed projects under RIDF and NABARD include rural roads, rural bridges, minor irrigation projects, medium irrigation projects, school buildings, hostels for backward classes, rural godowns, rural markets, Anganwadi buildings, primary health centres, polytechnic buildings, rural service centres and fish jetties.

• T  he government provides co-operative credit for both short-term and long-term purposes. Besides, urban co-operative banks, major co-operative banks operate in rural areas. The Karnataka State Co-operative Apex Bank, through its affiliated District Central Cooperative Bank and Primary Agriculture Co-operative Societies at the village level, has been extending short-term credit to farmers and other micro entrepreneurs. These credit institutions provide short-term, medium-term and long-term credit to PACS and other societies at the grassroots-level and deal directly with individual borrowers too. However, loan recovery is one area where the government needs to get together its act. The recovery figures show that there is a high amount overdue in long-term loans compared to other term loans. In 2014, recovery fell drastically.

• T  he National Urban Livelihood Mission (NULM) and the State Urban Livelihood Mission (SULM) are new schemes which have been implemented in the state from the financial year 2014–2015. NULM is the revamped and restructured scheme of Swarna Jayanthi Shahari Rojgar Yojana (SJSRY), and SULM is a state-based replica of the NULM. The Directorate of Municipal Administration (DMA) is the state-level nodal agency for implementing the SULM.

• D  uring 2014–2015, the government permitted disbursal of short-term loans up to `3 lakh ($4,425 approximately) at zero percent interest and medium-term and longterm loans up to `10 lakh ($14,750 approximately) at 3 percent interest. For this, a budget provision of `288 crore ($ 42.4 million approximately) had been provided in 2014-15. Till October 2014, `144 crore ($ 21.7 million approximately) was released to 4.40 lakh farmers as interest subsidy through co-operative institutions.

• K  arnataka has been among the top 3 states in the country in the self-help group bank linkage programme. The self-help groups (SHGs) movement is deep-rooted in the southern state. Women have benefitted from the Women and Child Development Department (WCDD) and the Stree Shakti programme. WCDD has facilitated 9,00,000 families, of which 1,88,457 Stree Shakti Groups have been credit-linked.

India overview Reforms in the financial sector, covering banking, insurance, financial markets, trade and taxation are major catalysts in strengthening the fundamentals of the Indian economy. On the national front, steps like re-capitalisation of public-sector banks, change in rules for hiring top management and a move towards paperless transactions were initiated.

• F  urthermore, financial inclusion is promoted through a strong and robust network of microfinance institutions (MFIs) and Kisaan Credit Cards (KCC). KCC aims at providing adequate and timely credit to farmers under a single window with a flexible and simplified procedure, adopting a whole-farm approach including short-term and long-term credit needs. MFIs service short-term loans, with limited or no collateral, to self-employed and salaried individuals, predominantly women. • T  he government has been leveraging the Karnataka State Financial Corporation (KSFC) to boost MSMEs,

The Central Government has paid special attention to publicsector banks (PSBs), which have been burdened with rising NPAs. A 7-point plan called the Indradhanush plan was launched by the government to revitalise PSBs. The present government has announced an infusion of `70,000 crore ($ 10.4 billion approximately) into the public-sector banks in the next few years to help them deal with the issue of distress assets. Likewise, the Karnataka Government is making serious efforts to revamp and remodel the banking sector to keep in step with the economic environment and make it worth it for the big and small 43


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

Institution – Microfinance Institution (NBFC-MFI), a new category of credit organisations created in 2013. It provides credit, insurance and pension services. • R  ang De: This fledgling MFI works on the principle that peer-to-peer lending will bring down the cost of microcredit. Rang De, started in 2006 as a non-profit organisation, has disbursed over 40,000 loans.

Driven by a youthful population, India ranks 4th in the usage of mobile banking; at 30 years, it also has the youngest average age of mobile banking customers. In India, mobile banking aids banks in reaching out to a rural customer base. players who contribute in varying measures. The one challenge that may still remain is the stranglehold of moneylenders over the rural economy. Until formal retail banking reaches deep hinterlands, there will be cases of overcharging, unscrupulous practices, extortion and harassment of the needy. Role of microfinance In this context, the role of microfinance institutions (MFIs) becomes critical in creating linkages for financial service in unbanked pockets. As on date, there are close to 300 MFIs in India which provide credit services to over 25 million people. Their combined outstandings are estimated to be `40,000 crore ($ 6.5 billion approximately). Of these, there are a few major players in Karnataka who service the needs of clients in rural areas as well as that of the urban poor. Some of the significant MFIs in Karnataka are: • S  anghamithra: Sanghamithra Rural Financial Services is the micro finance arm of Mysore Resettlement and Development Agency (MYRADA). Incorporated as a Section 25 company (non-dividend paying company) in 1995, the MFI leveraged self-help affinity groups among the poor to create bankable communities. MYRADA, an NGO founded in 1968, works in the area of building sustainable development with community participation as an agent of change. • G  rameen Koota: Grameen Koota Financial Services is a Bengaluru-based MFI providing a wide range of financial services to the rural poor and low-income households, particularly women, on a commercial basis. It is registered with Reserve Bank of India as a Non-Banking Financial 44

• U  jjivan: Ujjivan Financial Services is one of the largest microfinance institutions in the country, with gross managed assets of about `3,038 crore ($ 458.7 million approximately) as of January 31, 2015. This MFI, founded in Bengaluru in 2005, operates primarily on a joint liability group lending model and has impacted the lives of over 2 million unbanked and under-banked customers in urban, semi-urban and rural areas with loans for home improvement, education and emergencies. In September 2015, Ujjivan was granted an in-principle approval by RBI to set up a Small Finance Bank. • J analakshmi: Perhaps India’s largest urban MFI, Janalakshmi Financial Services was originally incubated in Sanghamithra. It has a customer base of over 27 lakh people in urban slums. It offers loans primarily for incomegeneration purposes, including loans to meet working capital needs of micro-entrepreneurs. It also loans offers loans to marginal farmers to cover them for agriculture and allied activities like dairy farming, vegetable cultivation, sericulture, poultry, and maintenance of tractors and other farm machinery. Janalakshmi, too, has been granted an in-principle approval by RBI to set up a Small Finance Bank. • S  KDRDP: Shree Kshetra Dharmasthala Rural Development Project is perhaps one of the largest NGOs in the state with touchpoints covering the whole state. Set up in 1982 as a charitable trust, SKDRDP undertakes micro-lending to a network of self-help groups. Its microcredit portfolio, which is estimated to be upwards of `2,500 crore ($ 377.4 million approximately), is integrated with its broad-based rural development projects spanning the state. The above list is by no means exhaustive. There are several other players in the space, each covering a sizeable population. What is remarkable is that most MFIs report healthy repayment rates, proving that the poor are not just bankable but need structured financial services. Some of the other non-Karnatakabased MFIs like SKS, Spandana, Share Microfin, Bandhan, and Basix also have a footprint in Karnataka.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

Source: Karnataka Economic Survey, 2014-15 Yet, the state has to rid itself of the stranglehold of moneylenders and unregulated chit funds. Changing landscape The year 2015 will go down in history for the bold steps that the central bank has initiated to remodel the banking sector in the country with the explicit purpose of extending financial services to underserved population groups. After a lot of deliberations and submission of several reports, including one by current RBI governor Raghuram Rajan in 2009, RBI recently granted in-principle approval to 23 entities for setting new banks – 2 Universal Banks, 11 Payment Banks, and 10 Small Finance Banks. With this, there is recognition that technology today enables cashless payments with the use of prepaid cards and that over 50 million families have been brought within the ambit of

financial inclusion, thanks to innovative delivery processes, including microfinance. Two of the Small Finance Bank approvals have been granted to Ujjivan and Janalakshmi, both based in Karnataka. What this simply means is that the poor or the unbanked who, so far, had access to credit and some form of insurance, can now also save money. This is a step in the right direction, indeed, but not without a new set of challenges. Both Ujjivan and Janalakshmi will have to overcome some daunting tasks regarding compliance, capital (foreign capital has to be replaced with domestic money), and, above all, acquiring a depositor base. Can they pull it off? The story will unfold over the next 18 months, the timeframe within which they need to prove that they merit the official licence.

45


RESURGENT KARNATAKA

INSIGHTS

Karnataka has a 200-year-old banking legacy. Apart from scheduled commercial banks, nationalised banks and foreign banks, there are well-entrenched co-operative banks and regional rural banks. Buoyed by the slew of industrial activities across sectors, banks are tapping new ways of doing business and extending their activities to semi-urban and rural areas, say experts.

Banking

urban centres outside the capital or main city so that the banking activity is disbursed among various centres. Broad-basing of economic activities to other centres like Mangaluru, Hubballi and Belagavi would give greater scope for banking in those centres. Further, there is a need for revival of investment in the state, improvement in infrastructure and power supply which would help increase economic activities. With state intervention and entrepreneurial contributions, both economic activity and banking would have great prospects. The capital city, Bengaluru, is home to many large and small IT companies, start-ups and other service industries that have given rise to many upwardly mobile young HNIs. There are huge opportunities for the banking sector in home loans, car financing and financial products like insurance, mutual funds, and credit cards. The young customers also need technology-enabled banking products like mobile banking/internet banking.

Rajni Mishra is a career banker with over 3 decades of experience with State Bank, India’s largest commercial bank. She is the Chief General Manager of State Bank of India’s Bangalore Circle (In-charge of Karnataka Operations). She sees opportunities for growth in various segments of the banking industry. What are the prospects of the banking industry in this state? In Karnataka, Bengaluru is the epicentre of all economic activity, and the banking sector is no exception to it. There are 10,132 branches of banks in Karnataka of which 1,964 are located in Bengaluru, as per data in September 2015. Around 60 percent of banking business is from Bengaluru alone and the prospects for banking are excellent in the city. There is a need to spread economic activity to other centres of the state. In semi-urban and rural areas, the activity is predominantly agriculture or agri-related activities, which, unfortunately, are not doing well. In all other developed states, there are many well-developed 46

What is going to drive primarily the banking industry in Karnataka? A sustainable economic growth is the driving force for the banking industry. The sinusoidal performance of the state’s economy will have similar impacts on the banking industry also. Garments, healthcare, wind and solar photovoltaic projects, food processing, defence and infrastructure are the segments which have good future potential and are expected to drive the growth of banking industry as well. We expect many infrastructure projects to come up in Karnataka: roads, highways, public amenities, additional railway lines, industrial corridors, airports, river canals, pipelines and dam upgrading. The government should play a catalytic role in the flow of investment in these industries. There are large numbers of private investors, both global and local, who look for opportunities to invest in prospective industries, and an investment-friendly atmosphere needs to be created. What kind of impetus should the government seek to provide to the banking Industry in this region? The following measures by the government will seek to provide a big impetus to the banking industry: • Digitisation and smart city projects in Karnataka.


RESURGENT KARNATAKA

INSIGHTS

Banking

• The start-up policy of the Government of Karnataka. • S  etting up of Small and Payment Banks will help provide impetus to financial inclusion. • S  hifting payment of all subsidies including those of the state government to DBT (direct bank transfer), to fund and activate inactive Jan Dhan accounts and to make financial inclusion activity viable for the Banking Industry. • Incentivising digital/plastic payment in lieu of cash payments by giving 1 percent cash credit incentive and exemption from service tax to digital payments. • D  igitisation of profitable and capable primary agriculture credit societies. • Measures to give impetus to credit growth. • Uniform stamp duty for mortgages. • M  easures for early settlement of disputes through DRTs (dispute resolution tribunals), including Lok Adalats. • Giving priority-sector status to the microfinance sector. • R  evised RBI Regulatory Framework for NBFCs to give them parity with banks and Financial Institutions • D  iscouraging populist ideas like agriculture loan write-offs and SHG loan write-offs What is the scope of PSBs to develop investment banking in the near future? The bane of the Indian capital market today is lack of customer confidence. This is reflected in the poor performance of both primary and secondary markets. The problems are of lack of liquidity, unscrupulous issuers, merchant bankers, and poor and unapprised issues. Investment banking can solve this problem because the investor would be dealing with reputed investment bankers in the primary market rather than unknown issuers. The scope for investment banking/merchant banking depends on the size of the market, restriction-liberation, banking policies, corporate culture and corporate dynamics. The Indian market is one of the largest emerging markets, and public issues, FDI, and debt financing are on the rise. SBI was the first Indian public-sector bank to setup its investment banking division, SBI Caps (SSL), in 1972. Investment bankers assist corporates in decision-making, and there are opportunities for the merchant bankers in mergers, takeovers/acquisitions, fundraising for government institutions and an active money market.

KR Pradeep is a chartered accountant and Promoter-Director on the Board of Directors of The Lakshmi Vilas Bank Ltd, which has a pan-India presence. He calls for the use of analytics to help stop farmer suicides and boost to co-operative banks. What impetus should the government seek to give the banking industry in this region? • The rise in the number of suicides among the farmers as a result of debt burden is an eye-opener and requires to be remedied. Financial inclusion should not lead to augmented availability of credit without the underlying rural incomes or capacity building - such unbridled lending would create a social disaster. • It is essential to map the data on the lendable value of income/assets and thereafter such a data can be made available to lending agencies. The state should bring effective legislation capping the rate of interest charged to the vulnerable sections of society. This would obviate any social tensions or suicides on account of debt burden. • Karnataka can bring its own regulation in the lines of Banking Regulation Act to develop and regulate the credit co-operative bank in the state. • Currently, there is no credible information for channelising the rural savings in a ROA/ROI model to create a cycle of savings and credit based on real interest. Even when it comes to waiver of farmer loans, a credible mechanism would enable the government to offer more direct, purposeoriented and meaningful help to the distressed sections than a mass waiver. 47


RESURGENT KARNATAKA

INSIGHTS

• T  he government should use analytics to predict the likely suicides and gauge if they are induced by a debt burden. Early warning could lead to adoption of appropriate remedial measures. Such an approach would be a pioneering effort in the entire country. • The government could set up a co-operative bank to funds only start-ups and another for SME entrepreneurs that could be an alternative to the high-cost microfinance institutions. Is there scope for public-sector banks in India to develop investment banking divisions in the near future? There is absolutely no institution in the country providing investment banking services for the SME sector. This potentiality can be well-utilised by the PSU banks, and, if done properly, may reduce hugely the stressed assets. Karnataka can take a pioneering step by bringing out a policy encompassing the various issues involved in high-banking activity. Karnataka can bring effective competitiveness by amending various legislation like the Stamp and the Registration Acts and taxes like VAT to facilitate such activity. This not only reduces the challenge of doing business in Karnataka but also can augment the government revenues through this new source. A special regime modelled on the offshore banking to cover M&A would make the state a mecca of opportunities not available elsewhere in the country.

Banking

In your opinion, what is going to primarily drive the banking industry in Karnataka? First, there is the increase in income factor and eventually this will trickle down to rural areas. I am not talking about the organised banking penetration growth coming from Tier-2 and Tier-3 cities. These cities are reasonably well-penetrated. I am talking about cities like Bengaluru where migration is still happening and the payments are coming from the organised segment. If we are going to look at the regular banking channels, that is one growth area. So, the first growth area would be the developed cities like Bengaluru having an increased number of jobs, and hence organised banking is going to benefit. Second, there will be trickledown effect in Tier-3 cities and rural areas. At least 60 percent of Karnataka’s taxes come from Bengaluru. That will eventually spread, hopefully, over the other cities as well. What is the influence of the entrepreneurship culture that Bengaluru has become a home to? The new way of banking is very technology-led, and there is an app development ecosystem in this city. A lot of the old technology of core banking is there in Bengaluru, companies like Infosys, Oracle and others. Now let us take a look at how start-ups are doing. There are a number of applications which work on the personal banking side and the number will increase as we go forward. Hence, that would drive a lot of start-ups to be on the financial side. Bengaluru should see a lot of such companies emerging in the near future, and banks would look to help them with their own financial tools and apps for them in Bengaluru. This also means pure business growth for banks since, with more companies, there are more jobs and more bank accounts. Bengaluru is a start-up hub, and, in terms of venture capital, it is the highest in the country. The opportunity of banking in Bengaluru driven by start-ups is phenomenal.

Bharat Ram Lokkur, MD, Lokkur Investment Advisors Pvt. Ltd, has extensive experience in PWC, KPMG and Grant Thornton. He currently serves on the National Governing Council of CII-Yi. He says that the start-up and IT ecosystem in the state help banks. 48

Similarly, a lot of funding is being driven into the city by VCs and the capital goes into bank accounts. There are two factors: the number of accounts and the volume of money in those accounts.


RESURGENT KARNATAKA

INSIGHTS

Banking

How does the entrepreneurship culture impact the micro finance sector? Entrepreneurship is not just from young, educated IT graduates; there is a huge amount of entrepreneurship among the poor, especially the urban and the semi-urban poor. There is an abundance of entrepreneurship available within that segment in Karnataka. There is entrepreneurship among the poor who run small enterprises, be it manufacturing, servicing or trade, and those are the people who provide a lot of jobs. This is highly beneficial to the economy and consequentially to the banking sector.

Samit Ghosh, Founder & Managing Director of Ujjivan Financial Service, was a career international banker for 30 years prior to establishing this microfinance institution in 2005. Ujjivan is the third largest NBFC-MFI in India. He says Karnataka presents excellent opportunities for the growth of microfinance. What are the prospects for the microfinance sector in this state? Karnataka has always had a very well-developed banking sector, being a home to so many banks in India. Karnataka is probably one of the most well-established microfinance markets in India being served by microfinancial institutions, NGOs and banks under the self-help group. The microfinance business in this state has had no crisis, and is focused on protecting the vulnerable customers. We work very closely with RBI and the government. In terms of serving the under-served and un-served in any state, Karnataka is probably one of the leading lights. Compared to all the other states in India, in the microfinance sector, both the AFC (Asset Financial Company) and the MFI (Microfinance Institution), Karnataka would be probably one of the top three states in India in terms of size and other aspects. We have been able to provide this service consistently without any problem for the last 10 years. Of the 10 finance bank licences which were given out (by RBI in September 2014), two of the biggest organisations are based in Bengaluru: Janalakshmi and Ujjivan. So, I think that the future also looks great for Karnataka.

How does financial inclusion impact the banking industry? Financial inclusion impacts the entire marketplace. Before 1985, even the middle class was not financially included; all that the people had were saving accounts and fixed deposits, and they could not get any kind of loans. It was after 1985, when the middle class started getting financially included, that they could choose from among savings, investment, insurance - whatever they required. This expanded the market place tremendously and also had a strong impact on the country in terms of growth because suddenly all the pent up demand for cars, two-wheelers and housing went up. If we are able to do something similar for the 600 million people who are financially excluded or under-served, if we can liberate them through financial inclusion like we have done for the 200 million middle class since 1985, it would expand the market tremendously and provide a tremendous impetus to growth. What would help promote banking evenly in all parts of the state? Though not evenly spread throughout the state, the penetration of banks here is probably much higher than in any other state. Microfinance institutions have started working in places like Raichur where there is not much economic activity. More than the government, RBI will actually generate penetration into a lot of these areas which are currently unbanked. Like in Bihar, the Karnataka Government can support banks which want to open up in rural areas by providing support in terms of cheap premises, but, more importantly, by providing strong infrastructure in terms of power, internet, communication and physical connectivity.

49


RESURGENT KARNATAKA

10

INSIGHTS

Banking


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

11


RESURGENT KARNATAKA

12

INDUSTRY OVERVIEW

Banking


INDUSTRY interests one mission...... OVERVIEW

varied business REDEFINING EXCELLENCE RESURGENT KARNATAKA

Banking

Undisputed Leader in

CASH MANAGEMENT SOLUTIONS

RADIANT CASH MANAGEMENT SERVICES PVT LTD

CASH DELIVERY AND PICK UP

NETWORK CASH MANAGEMENT

CASH IN TRANSIT SERVICES

ATM MANAGEMENT SERVICES

MAN BEHIND COUNTERS

SECURED STORAGE DEVICES

Head Office No.28,Vijayaragava Road, T.Nagar, Chennai - 600017. P: +91-44-28155448 / 6448 / 7448. Fax: +91-44- 28153512 Regional Office 57/3, 10 cross, Gundappa Gowda Road, Ejipura, Bengaluru – 560 047 P: +91-80-25717744/22/25703566 Fax: +91-80-25717744 email: contact@radiantcashservices.com. website: www.radiantgroups.com 13


RESURGENT KARNATAKA

14

INDUSTRY OVERVIEW

Banking


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

15


RESURGENT KARNATAKA

16

INDUSTRY OVERVIEW

Banking


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

17


RESURGENT KARNATAKA

18

INDUSTRY OVERVIEW

Banking


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Banking

19


INDUSTRY BiotechOVERVIEW & Pharma Biotech & Pharma

RESURGENT KARNATAKA

Karnataka’s bio-pharma sector is one of the fastest growing in the country. The state drives 50% of the total revenues in India’s biotechnology sector.

Photo: Biocon

Growth hub of biotech

Karnataka has been the epicentre of growth of the biotech industry in the country, of which bio-pharma is a crucial component. The state contributed to more than a quarter of the country’s total biotech exports of around `26,518 crore ($ 4 billion approximately) for 2014–2015. The industry in India is currently valued at roughly `40,000 crore ($ 6 billion approximately) and is estimated to grow at a CAGR of 30 percent to touch `6.6 lakh crore ($ 100 billion approximately) by 2025, according to the Central Ministry of Science and Technology. In India, biotech holds 2 percent of the global market share and comprises 800 companies. Within biotechnology, bio-pharma contributes 64 percent of the total revenue, followed by bio-services at 18 percent, bio-agriculture at 14 percent, bio-industry at 3 percent, and bioinformatics at 1 percent. India, which is much sought after by foreign companies, is expecting to see a high flow of foreign direct investment (FDI). Today, the country is a leading destination for clinical trials, contract research and manufacturing activities owing to the growth in the bio-services sector. 60

Karnataka has 236 pharmaceutical and biotechnology companies, including 5 of the top 10 companies in the country. The state’s bio-pharma industry consists of a range of manufacturing units, from small units to multinational enterprises, both in the public sector as well as private companies, providing direct employment to over 25,000 people. Some of the bio-pharmaceutical firms in the state are dedicated to manufacturing monoclonal antibodies, which include anticancer drugs, as well as insulin and vaccines that are produced using cell culture. The pharmaceutical industry in India is currently among the Top 5 in the world in terms of volume and is the tenth largest in value terms. It is also one of the Top 5 emerging markets of the world for bio-pharma business. Karnataka’s bio-pharma sector is one of the fastest growing in the country, ranking fifth in pharma exports and contributing 10 percent to Indian pharmaceutical export revenue. Exports of basic chemicals, pharmaceuticals and cosmetics increased


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

significantly to `8,300 crore ($ 1.2 billion approximately) in 2013–2014 against `5,077 crore ($ 766 million approximately) in 2011–2012 - a growth of 64 percent over 2 years. Karnataka’s Millennium Biotech Policy II of 2009 has built upon the achievements of the 2001 policy by identifying new avenues of innovation. It offers several incentives like subsidy for effluent treatment plants, interest-free loans from the government for paying value-added tax, financial support towards patent registration, and greater freedom to agri-biotech companies to conduct field trials. The Karnataka Government has also unveiled a pharmaceutical policy modelled on the lines of the state’s biotechnology policy, which aims to accelerate the pharmaceutical business in the state with a focus on R&D, intellectual property and clinical trials. The state is focussing on maintaining its leadership position in bio-pharmaceutical manufacturing and has taken explicit measures for export promotion through the Karnataka Pharmaceutical Policy 2013 (KPP 2013). Pharma infrastructure KPP 2013 has identified three broad areas for investments: • Infrastructure • Education

Biotech & Pharma

and standalone power station. Housing facilities with all basic amenities are also planned so that people can ‘walk-to-work’. Yadgir: KIADB has acquired around 3,000 acres of land at Kadechur and Badihalla in Yadgir district to set up pharmaceutical SEZ. The area is strategically located in terms of connectivity. The place is well-connected by road to Hyderabad (Telangana), Vasco da Gama (Goa), and Bengaluru, Hubbali, Dharwad, Belagavi and Ballari (Karnataka). It is also one of the largest railway stations in the Hyderabad-Karnataka region; it lies on the Mumbai-Chennai railway broadgauge line and is connected by rail to major towns in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and, of course, Karnataka. The location and the incentives offered have encouraged pharma companies to relocate from Hyderabad to Yadgir. Hassan: The KIADB Pharmaceutical Special Economic Zone in Hassan hosts 6 pharma units – two of which are already operational. The topography of Hassan and its climatic conditions, which are conducive to growing coffee, make it ideal for medicinal plantations. Medicinal, aromatic and other economical plants (MAOEP) are an important part of the biotech ecosystem and their culture provides growers an opportunity to enhance their income. The processed and finished products with their distinctive properties contribute significantly to the pharmaceutical industry.

• R&D The infrastructure plans comprise pharma parks, common testing laboratories, cold storages and warehousing. KPP 2013 envisaged creation of pharma parks in the publicprivate-partnership model with equity contribution of up to 26 percent from the Karnataka State Industrial Infrastructure Development Corporation (KSIIDC), the Karnataka Industrial Area Development Board (KIADB) and the Infrastructure Development Department (IDD). The policy also offered a onetime capital subsidy of up to 50 percent of the total cost subject to a ceiling of `5 crore ($ 754 thousand approximately), with the remaining 50 percent coming from the stakeholders. Additionally, a similar one-time capital subsidy with the same benefits was extended to establish effluent treatment plants. Each park is to be equipped with a common effluent treatment plant (CETP), common testing laboratory, cold storage with warehousing,

R&D and education The State Government has also announced the setting up of the Karnataka Pharmaceutical Development Council (KPDC), a monitoring agency, and the Vision Group on Pharmaceuticals. With research and development (R&D) being the driver of this industry, the government has offered an annual grant of `50 lakh ($ 73,756 approximately) for research, monitored by the KPDC. It has also proposed to incentivise clinical trials for bio-availability and bio-equivalence by covering 20 percent of the total expenditure subject to a ceiling of `1 crore ($147 thousand approximately). The state is home to many nationally and internationally renowned biotechnology research institutions, including the Indian Institute of Science, National Centre for Biological Sciences, NIMHANS and Jawaharlal Nehru Centre for Advanced Scientific Research. It is also home to key life science 61


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

companies like Advinus Therapeutics, Astra Zeneca, Biocon India, Jubilant Biosys, Metahelix Life Sciences, Strand Life Sciences, Strides Arcolab and Xcyton Diagnostics. In fact, one of the key growth drivers for the state which is helping it to differentiate itself from other biotech hotspots is the strong research base that has been created over time. There are 103 R&D centres which conduct frontline research. One of the major pain points for the biotech industry has been the lack of skilled manpower. In an attempt to address this issue, KPP 2013 promoted Biotechnology Finishing Schools (BTFS) with well-equipped laboratory facilities and appropriate course content. This is expected to ensure a continuous chain of industry-ready graduates. Till date, 12 BTFS host institutions have been established, with `1 crore ($147 thousand approximately) being sanctioned per finishing school. In 2009, the state had set up a bio-cluster to facilitate research in biosciences and entrepreneurship by providing R&D, training and services in state of-the-art technology platforms. The cluster consists of Institute for Stem Cell Biology and Regenerative Medicine, National Centre for Biological Sciences, and Centre for Cellular and Molecular Platforms. Under the KPP, the Karnataka Government has proposed to set up a venture capital fund of `50 crore ($ 7.5 million approximately) with a price preference of 15 percent for micro, small and medium enterprises (MSMEs). This is expected to lower the entry barrier for potential entrepreneurs in the pharmaceutical sector. Biotech vision Karnataka recently drew up an action plan in line with the Centre’s National Biotechnology Development Strategy 2014. One of the aims of the policy is to meet 20 percent of its fuel needs from bio-fuels by 2020. Over the last one year, the state has made some progress that may go a long way in nurturing the biotech sector. • A  bio-venture fund worth `40 crore ($ 6 million approximately) has been setup to promote projects in the areas of stem cells, genetics and bio-manufacturing. • B  engaluru is also home to the country’s first BioInnovation Centre – a world-class Incubation centre with central instrumentation facility - built with the help of the of 62

Biotech & Pharma

Karnataka BT & IT Services and the Central Department of Biotechnology (DBT). • A  nother fund with a corpus of `33 crore ($ 5 million approximately) has been set up for companies to support technology transfers and research projects. The state will contribute to 26 percent of the fund and the rest 74 percent will be raised from venture capitalists. It has also set up a corpus fund of `20 crore ($ 3 million approximately) to enable commercialisation of research results. • A  unique package of concessions has been sanctioned for mega projects. • R  esearch laboratories were automatically included under the green category as per the Karnataka Industrial Policy 2009–2014. • B  TFS were set up to increase the employability quotient of students and make them industry–ready. • F  ive biotech parks have been established in different parts of the state. A sum of `5,500 crore ($ 827 million approximately) is being invested in The Helix Biotech Park, a joint initiative of the Department of IT, BT, S&T, and Alexandria Real Estate Equities, the world’s largest laboratory space providers. Set over 106 acres in Electronic City, The Helix Biotech Park is expected to generate direct employment to 20,000 in the R&D sector and indirect employment to 60,000. • A  n animal quarantine facility has been set up near the Kempegowda International Airport. • A  bio-IT facility in was set up in the Institute of Bioinformatics and Applied Biotechnology (IBAB) in Electronic City, Bengaluru, as a Centre of Excellence for Research and Training in Bioinformatics. • T  he single-window clearing mechanism has been made available for all biotech projects. • To promote Intellectual Property Rights (IPR) and innovation, the Karnataka Biotechnology Council will develop a comprehensive database on patents, with online processing. An exclusive cell to advise entrepreneurs on how to file patents and how to protect IPR would be constituted. The cell will interact with the National Law School, produce publications for use of entrepreneurs, conduct seminars, and advise companies on IPR management. • T  o create awareness about investment opportunities in biotechnology, genomics, bio-fuels, bioinformatics, and contract research among the entrepreneurial community, the state has hosted several events.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Biotech & Pharma

Karnataka has a strong research base, with as many as 103 R&D centres & more than 6,800 scientists are involved in biotech research.

Nurturing biodiversity According to estimates, 198 pharmaceutical and 82 cosmetic units in the state use bio-resources in their production process. Under the guidance of the Karnataka Biodiversity Board (KBB), 4,636 Biodiversity Management Committees (BMCs) were set up to promote sustainable use and documentation of biological diversity at local levels. The BMC is mandated to prepare a People’s Biodiversity Register (PBR), in consultation with grama panchayats, which will contain comprehensive information on availability and knowledge of local biological resources and harness traditional knowledge on their use. In all, 468 PBRs have been prepared so far under the initiative, creating an invaluable database for the industry. Besides the BMC initiative, the Biodiversity Board has mapped a biodiversity atlas, aimed specifically at maintaining biodiversity in arid regions. Project areas of 100-200 hectares have been demarcated across 13 dry districts, and 14 rare, endangered and threatened plant species have been identified. Going forward, the state proposes to set up a clutch of agribiotech parks. A Nutraceutical and Phyto-Pharmaceutical Park

Photo: Biocon

(N2P2) has been planned in Mysuru, in collaboration with the Central Food Technology Research Institute. Feasibility study is already on for the proposed agri-biotech park in Dharwad in collaboration with the University of Agricultural Sciences. A similar Marine/Aqua Biotech Park has been planned in collaboration with the College of Fisheries, Mangaluru, and one for Animal Biotechnology, in collaboration with KVAFSU, Bidar. Some major moves Investment by GSK: GlaxoSmithKline Pharmaceuticals, the Indian unit of the UK-based GSK, started work on its largest greenfield pharmaceutical manufacturing facility, in Vemgal in Kolar district, with an estimated investment of `1,000 crore ($ 150 million approximately). The facility, coming up on a 50-acre site, will make over 8 billion tablets and 1 billion capsules a year in the area of gastroenterology and antiinflammatory medicine and is expected to be fully operational by 2017. Availability of investment incentives and cheap government land were said to have sealed the choice of Vemgal. GSK’s clinical development centre in Bengaluru includes a warehouse, site infrastructure, employee welfare centre, and utilities to support the manufacturing and packing of medicines. 63


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Biotech & Pharma

South Africa, ANVISA, and PIC/S (Pharmaceutical Inspection Convention and Pharmaceutical Inspection Cooperation Scheme) which reinforce the state’s position as a hub for quality outsourcing. On the face of it, companies appear well-equipped to meet future needs in the areas of innovative formulations, novel drug delivery systems and nanotechnology, among others. Focus on North Karnataka Karnataka’s policy of offering competitive incentives to develop the backward Hyderabad-Karnataka region seems to paying off. The state plans to allot over 400 acres of land to the pharma sector in the Hyderabad–Karnataka region, which will cost the over `1,500 crore (approximately $ 226 million). Source: Department of Information Technology (IT), Biotechnology (BT), and Science and Technology (S&T), Government of Karnataka International Med Expo: Karnataka was identified by the Union Government to play host to the first-ever international exhibition and conference on pharmaceutical industry, India Pharma 2016 and Indian Medical Expo 2016, at the Bengaluru International Exhibition Centre (BIEC). Experts feel that such conferences will help stimulate growth of the state’s core competency in contract research and manufacturing services (CRAMS). This is also expected to attract FDI and incentivise local companies to expand operations in both greenfield and brownfield projects. Ayush licensing: The state has set up a full-time Ayush Drug Licensing Authority to strengthen inspections of the Ayurveda, Homoeopathy, Unani and Siddha medicine manufacturing and marketing activities in the state. There are 215 Ayurveda units, 10 Homoeopathy units, and 2 Unani units in the state. There are 7 approved Ayurveda, Siddha and Unani drug testing laboratories to cater to market needs. Pharmexcil office: Pharmaceuticals Exports Promotion Council of India (Pharmexcil) opened its fifth office in the country in Bengaluru. This could play a pivotal role in establishing Karnataka’s credentials as a world-class pharma manufacturing state and help sort out all export-related challenges, especially those that exporters face while obtaining documentation from the office of the Central Drugs Standard Control Organisation (CDSCO). In Karnataka, there are 7 US FDA-certified, 8 MHRA-certified, and 82 WHO-certified plants, besides several plants with international approvals including those from UNICEF, MCC 64

Some of the incentives on offer by the state are: • T  he unit price of land being offered by the Karnataka Government is `7 lakh ($ 10,000 approximately) per acre against `35 lakh ($ 53,000 approximately) offered by the Telangana Government. • K  arnataka offers 100 percent exemption of stamp duty on registration of loan agreements and land registration. • It also offers 100 percent reimbursement of land conversion fee. • There is 50 percent exemption on entry tax. • 1 00 percent capital subsidy on setting up effluent treatment plants. • 25 percent tax exemption on electricity tariffs. • 25 percent investment subsidy on upgrading technology. • A  liberal interest subsidy on loans depending on the size of the investment. Apart from the state’s own policy measures to help grow the bio-pharma sector, Karnataka is benefitting from regional geopolitical changes. The bifurcation of the neighbouring Andhra Pradesh into Telangana and Andhra Pradesh and the consequent lag in sorting out economic resources like water and power appears to be working to the advantage of Karnataka. In recent months, 33 bio-pharmaceutical companies, including Virupaksha Organics, Gowra Petrochemical Industries, Optimus Drugs, and Hetero Labs, which have set up factories in Hyderabad, have crossed the borders into Karnataka.


RESURGENT KARNATAKA

INSIGHTS

Biotech & Pharma

Biotech and, more recently, biopharma are sectors of pride and joy of Karnataka. Like IT, both these sectors have risen from the state’s and its capital’s academic roots.

the development of the biotech sector in terms of the availability of a scientific workforce, good infrastructure, and policies that allowed easy import of key materials.

Karnataka is an attractive destination for global and domestic biotech investments in India as it offers extensive intellectual capital in the form of biotech finishing schools and R&D centres, sector-focused SEZs across the state, and dedicated biotechnology parks like the Bangalore Helix and the Alexandria Knowledge Park, alongside Biocon’s Advanced Learning Centre of Biosciences. These establishments are bridging the gap between industry and academia. Industry experts concur that the increased operation would lead to more innovation in the sector.

The public-private partnership helped in creating an enabling ecosystem that thrived on sector-specific, conducive policies and special incentives which catalysed research and development in the areas of genomics, biofuels, bioinformatics, contract research and fuelled the growth of the sector. The state’s biotech policy led to the creation of a wide and diverse biotech cluster in the state, which allowed outsourcing of various activities and led to employment generation, investment and a wide range of socio-economic services. Are Indian biopharma companies focusing on breakthrough research and developing new drugs? The Indian pharma industry has, over the decades, built up considerable competencies in developing and selling chemistrybased generic drugs at a fraction of the cost of drugs sold in the West. By bringing down the prices of essential therapies for HIV, TB and cancer by as much as 90 percent, the Indian pharma industry helped save millions of lives across the globe. However, biopharma innovation has not been limited to the realm of generics, and there have been several instances of breakthrough innovation in India.

Kiran Mazumdar Shaw is Chairperson & Managing Director of Biocon, India’s largest and the only publicly listed biotech company. Bengaluru is the biotech hub of the country owing to the proactive industry-government-academia engagement over the last few decades, she says. What has been your experience in setting up a biotech company, specifically in Karnataka? Karnataka realised the potential of biotechnology much before any other state in the country did. It was the first state in India to introduce a Biotech Policy, in 2001. The state biotech policy also paved the way for setting the national agenda for biotech. The articulation of a sector-specific policy and the setting up of a Biotech Vision Group, with representatives from the government, industry and academia, provided the impetus for

Biocon has pioneered affordable innovation in the biotech sector and developed differentiated therapies for diabetes, cancer and autoimmune condition. We launched India’s first indigenously produced antibody-based biological drug for head and neck cancer, Nimotuzumab, in 2006. In 2013, we launched the world’s first novel anti-psoriasis biological drug, Itolizumab. We are also developing the most innovative insulin analogue Tregopil that could potentially become the world’s first orally delivered insulin, thus revolutionising the treatment of diabetes. Biocon is aiming to transform the approach to killer diseases by developing affordable drugs with the blockbuster potential to benefit a billion patients. Other instances of path-breaking R&D include Bharat Biotech’s launch of a safe and effective rotavirus vaccine that costs less than `66 ($1 approximately), in early 2015. 65


RESURGENT KARNATAKA

INSIGHTS

Biotech & Pharma

Indian Contract Research Organisations (CROs) have also moved up the value chain from component play to integrated discovery and development services. Biocon’s subsidiary Syngene is the largest integrated contract research organisation playing a key role in bringing novel molecules to the market by supporting the R&D efforts of organisations across diverse sectors like pharma, biotechnology, nutrition and animal health.

Is there a need to expand the number of dedicated pharma parks other than Hassan and Yadgir? In what ways can such expansion help the pharma network in the state? Karnataka is home to over 260 pharma manufacturing units representing small, medium and large enterprises that provide direct employment to about 25,000 people and generate almost `13,377 crore ($2 billion approximately) worth of revenues.

Companies like Strand Life Sciences are leveraging the potential of bioinformatics through Big Data to find answers to the challenges in translational medical research, while those like Stempeutics Research are developing stem cell-based products and therapies in India.

While the largest concentration of pharmaceutical manufacturing units is in and around Bengaluru, plants have also come up in Mysuru, Raichur, Hubbali, Belagavi and Dharwad. I believe that dedicated infrastructure in the form of Pharma Parks can help the industry in terms of access to uninterrupted power and water supply, good effluent treatment systems and better rail and road connectivity.

Some like Ganit Labs have successfully engaged in genomics, bringing down the cost and time required for sequencing, analysing and interpreting genome data. A new range of advanced yet affordable healthcare monitoring devices is being developed by companies like XCyton Diagnostics and Bigtec Labs. The Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA) has suggested that the pending Pharmaceutical Policy should be similar to the state’s IT and BT vision documents. What aspects of the policy do you think needs the most emphasis for the next 10 years? The Karnataka Pharmaceutical Policy has the potential to replicate the same kind of success for the pharma industry in the state. The policy needs to offer the pharma industry attractive fiscal incentives in terms of infrastructure, education and research. Moreover, it should emphasise subsidy for effluent treatment plants, tax exemption on power and improved ease of doing business through a single-window clearance process. To begin with, the state government should give its clearance to the long-standing demand for the formation of the Karnataka Pharmaceutical Development Council (KPDC) with a budgetary provision of `1 crore ($ 149.5 thousand approximately). It should setup the Vision Group on Pharmaceuticals with a provision of `25 lakh($ 37.3 thousand approximately).

66

Such well-planned infrastructure is crucial for a knowledge-led business like pharma as it can lead to the creation of a scientific ecosystem that can be leveraged to offer cost-competitive products and services by emulating Bengaluru’s biotech cluster of biopharmaceuticals, agri-biotechnology, industrial biotechnology, bio-energy and bioinformatics companies. The Karnataka Pharmaceutical Policy 2013 is being called the first of its kind in terms of incentives to research, infrastructure and foreign direct investment. Has the policy already shown effect in the sector? With the State Government announcing a new Karnataka Industrial Policy in 2014, there was a lack of movement on the ground as far as the Karnataka Pharmaceutical Policy 2013 is concerned. What is heartening, however, is the fact that the Karnataka Government recently brought the Pharmaceutical Policy under the purview of the Department of Industries and Commerce on the recommendation of various stakeholders. This shows that the government is committed to helping the pharmaceutical sector in the state achieve the same levels of success that IT and BT have achieved.


RESURGENT KARNATAKA

INSIGHTS

Biotech & Pharma

The government is being proactive in trying to help entrepreneurship in this sector. It has the Bangalore Bio and many initiatives that are basically helping to generate that momentum. We need to encourage large numbers of excellent institutions to be embedded within our university system. The university system in Bengaluru, despite the presence of so many institutes, does not take advantage of this and if there would be one thing that the government could do, I feel it could try and bridge that gap between the major State universities and Central institutes. Some of the country’s best institutes are located in the city across all sciences. If this connection can be made, it will add a huge value because the students would be benefitted tremendously. Dr. Satyajit Mayor is Dean of the National Centre for Biological Sciences (NCBS), which is engaged in fundamental research in biology and is a centre of the Tata Institute for Fundamental Research (TIFR), Mumbai. Dr. Mayor moots more collaboration between universities and research institutes. What has been the experience of NCBS in Karnataka? The State Government has been incredibly generous by making resources available to NCBS. We are on this beautiful Agricultural University campus that is an enormous boon to us. The government has also shown great foresight in creating an opportunity for the Institute for Stem Cell Research (InSTEM) to grow just next-door. It is good to have co-located institutions because we can function synergistically. The State Government is also trying to create mechanisms which are decentralised. For example, it is trying to promote collaborations between researchers in Rajeev Gandhi University of Medical Sciences, which is a part of the state medical system, and researchers in institutes like ours. They are trying to bridge that by providing seed funding and actively promoting people to meet and collaborate. At the end of the day, it really depends on the quality of people who come into the research environment. The government has used lessons from the experience of the IT sector and used them especially in the biosciences. An excellent example is the Institute of Bioinformatics and Applied Biology (IBAB), a state government-funded initiative to create a structure that promotes research. It also encourages high-end training people to enter the biotechnology sector.

AR Jayakumar is CEO of Kitven Fund (Karnataka Information Technology Venture Capital Fund), a venture capital fund that is backed by the financial institutions of the central and the state governments. He is of the opinion that recent measures to improve employability of biotech graduates would provide a boost to the sector. What are the specific issues faced by biotech companies in Karnataka and how are they being addressed? There are many colleges that teach biotechnology, but the students need training to be employable. Such training could be between 3 to 12 months before they become productive for the company. Startup companies do not have the time to train, and the issue of employability is being addressed by the state government initiative in setting up biotech finishing schools where graduates will be trained and could be employed easily by companies. 67


RESURGENT KARNATAKA

INSIGHTS

The State Government is opening a Bangalore Biotech Information Centre that has a lot of equipment that startups can use to carry out research. This is a big saving for startups. The government’s biotech policy, subsidies and tax rebates to biotech companies and startups are helpful. The government is also helping them get bio-venture capital funds to ensure that biotech companies get the money they require to sustain themselves and continue further research and development. With sufficient thrust, biotechnology could become the next IT sector with a lot of scope of employment generation, revenue generation and export. What are the growth areas of biotech? The growth has primarily been in the pharmaceuticals section. There is a lot of scope for agri-bio, and we have reached a stage where there is a lot of productivity in this sector. A lot of research is being done in food, biofuels and bioinformatics also. We are open to investing in all areas of biotech.

Biotech & Pharma

Karnataka is among the more supportive states on development of new pharma and biotech ventures. Bengaluru provides an excellent ecosystem from universities like IISc, already established companies like Biocon and a vibrant culture of startup economics. Its foundation is the confidence portrayed by the city in pursuing excellence and the willingness and ability of young entrepreneurs to support a discovery and build model of business. While the infrastructures like early-stage screening, molecule development, preclinical and clinical development have improved significantly, there is much room for development. One key challenge is that the Government of India needs to have a rethink on the clinical-study approval process and the need to simplify further and reduce the time for approval. Even in countries like the Netherlands, one can obtain much faster approval and with a much lower burden of documentation. This needs urgent attention. Is there a focus on breakthrough research and developing new drugs here? The earlier perception was that Indian biotech/pharma companies work as ‘contract farms’ for piecemeal research for Western companies. Has this changed? Today, there are several companies pursuing IP-based, homegrown technology. Capital is now available to fund from proof of concept stage to clinical development and regulatory approval globally. There are at least 2 drugs from Bengaluru-based companies entering advanced global clinical trials, including one from Bioplus. New-age diagnostic companies like Mitra Biotech, funded by marquee venture capitalists and led by experienced managers are well on their way to establish Brand India and Brand Karnataka in the forefront of global pharma.

Sundeep Aurora is Founder and Chairman of Bioplus Life Sciences and a co- author of several global patents including nanotechnology, drug delivery and biochemistry. Improved infrastructure and speedier approvals would further accelerate growth, says Aurora. What are the specific challenges for pharma and biotech companies, specifically in Karnataka? 68

Our long-term prospects will certainly improve if we are able to improve our collaboration with academic institutes, improve our understanding of strategic intellectual property management, and obtain more domain knowledge in commercial development of innovative technologies and products. Further improvement of citywide infrastructure and fast-track regulatory approval is also critical to sustaining and accelerating long-term growth.


RESURGENT KARNATAKA

EDUCATION INDUSTRY OVERVIEW

Education

Nearly 6 lakh students graduate from colleges in Karnataka each year.

Photo: Kashif Masood

A case for inclusion

Historically, Karnataka has been at the forefront of higher education in the country, especially in the areas of medical and engineering education. With an expansive network of universities and colleges, the state has attracted students from different parts of India as well as other countries. It boasts of 44 universities, the fifth highest in the country, run both by the government and private sectors.

The 187 engineering colleges in the state enrol over 85,000 students, while general bachelor courses like arts, commerce and science register over 200,000 students every year. The state boasts of 8 of the nation’s 75 top-ranked engineering institutions. There are 4,519 pre-university colleges to impart general education, with over 1 million students. Karnataka has 291 Polytechnics, 114 Medical colleges (largest that any state has), 38 Dental colleges, 56 Ayurveda colleges, 11 for Homoeopathy, 5 for Unani, 4 colleges for Nature Cure and Yoga, 69 Pharmacy colleges and 287 Nursing colleges. Bengaluru has often been called a city of knowledge workers,

70

not without reason. The state has produced a large talent pool of educated youth who have formed the backbone of the thriving services sector in the state. If Bengaluru today is India’s information technology capital, one of the enabling factors has been the large catchment of skilled engineers. The same would apply to other sectors like healthcare and aerospace. It is home to institutions of higher learning like Indian Institute of Science (IISc), National Institute of Mental Health and Neuro Sciences (NIMHANS – which is a deemed university), Indian Institute of Management (IIMB), University Visvesvaraya College of Engineering, National Law School University of India (NLSUI), to name just a few. The state ranks seventh in terms of Net Enrolment Ratio (NER) with a 93.56 percent ratio in primary education, as against a national average of 88.08 percent. NER denotes the ratio of the number of children of official school-going age (as defined by the national education plan) who are enrolled in primary schools to the total population of children of official school-going age.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

The state has an overall literacy rate of 75.6 percent, slightly above the national average of 74.04 percent as per the census of 2011. While 82.8 percent males are literate, the comparable rate for females is 68.1 percent, according to data available for 2013-14. The national percentages are 82.14 percent and 65.46 percent, for males and females, respectively. Also, 90.79 percent of youth aged 15 to 24 years are literate in the state, placing Karnataka at a seventeenth rank nationally. The state remains among the top few in the country in terms of overall education parameters. School dropout rates are acceptably low - 2.37 percent in lower primary schools and 2.54 percent in higher primary schools. The pupil-to-teacher ratio stands at 42:1 in government-aided schools, and 30:1 in unaided schools. Improving School Infrastructure For fiscal 2015-16, the total state budget allocation for education is `22,102 crore ($ 3.3 billion approximately) out of which `17,837 crore ($ 2.6 billion approximately) has been allocated for primary and secondary education. This has set the tone for prioritising basic education and making education inclusive and accessible to more children. In 2012, the State Government had come up with a proposal under which private firms would be roped in to take care of the non-academic work in state-run schools. These firms would be put in charge of building maintenance, security, sanitation, plumbing, gardening and power back-up. It is expected that this will allow the government machinery to focus on improving the quality of teaching. This initiative is intended to be piloted in Bengaluru, Gulbarga and Chikkaballapur. Under the Swachh Vidyalaya Scheme, which runs with the motto of ‘Clean India: Clean Schools’, Karnataka has met the 100 percent target for building separate toilets for girls and boys in all government schools. The Central scheme aims to ensure that every school in India has a set of functioning and well-maintained water, sanitation and hygiene facilities. The problem of water sources for state-run schools could be addressed either by digging borewells or laying pipelines to the nearest source of water. The total cost of ensuring that all toilets in the state have water is estimated to be roughly `32.06 crore ($ 4.8 million approximately). The state has also introduced the Child Protection Policy (CPP), guided by the

Education

National Policy for Children, 2013, to reaffirm the government’s commitment to safeguard children from harm and abuse in school. The policy will apply to all personnel and persons related to the school and who come in direct or indirect contact with children. NGO network In recent years, several non-governmental organisations (NGOs) have come forward to help in improving the quality of education, especially in state-run schools. A number of such NGOs currently work in the state, some directly collaborating with the government. Most of these organisations offer serious, highquality academic interventions. • Ek Step: Founded by Infosys co-founder and former head of India’s Aadhaar project Nandan Nilekani and his wife Rohini, Ek Step is involved in building a technology platform to deliver learning materials to over 200 million Indian children below the age of 10. The Nilekanis have donated `66.6 crore ($ 10 million approximately) to the project which is scheduled to be launched on a large scale by 2016. The startup is working in the field of reading and basic mathematics for children between 5 and 10 years of age and is currently being tested in Mysuru. • A  kshara Foundation: The organisation works with government-school teachers across north Karnataka. The foundation identifies the resources and facilities needed in schools to improve the reading and mathematics skills of students. It has also tied up with Hewlett-Packard to analyse, record and identify the level of prevalent education and triggers for better learning. The government has tied up with Akshara Foundation and invested `5.64 crore ($ 844 thousand approximately) to launch the Ganitha Kalika Andolana (GKA) which aims to facilitate classroom teaching of mathematics. The scheme has been rolled out in all schools in the Hyderabad–Karnataka region in 6 of the most backward districts — Kalaburagi, Bidar, Raichur, Ballari, Koppal and Yadgir. • L  earning Guarantee Programme of Azim Premji Foundation: Launched in 2002, this programme aims to identify the best schools in the districts and use them as examples for other institutions to follow suit. Schools were assessed and the winners were given cash awards ranging from `5,000 ($ 75 approximately) to `20,000 ($ 300 approximately). The schools had to specify what they were going to spend the money on. This project was a runaway success, and the State Government implemented it in 30 schools in each block. 71


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

• Teach for India: This is one another pioneering initiative which started its fellowship operation in Bengaluru in 2015. TFI Fellows aim to bridge the teaching-learning gap in government schools by playing a supporting role to existing teachers. The programme is a success, and the government is considering extending it to Tier II cities like Mysuru and Hubbali.  he mid-day meal programme, which is a flagship programme T of the Central Government across the country, has been systematically implemented in Karnataka. Despite the occasional controversies and hiccups, the scheme has been successful in attracting students to school, which was its basic aim. All students up to Class 10 in government and government aided schools get hot meals, funded both by the Central and State Governments. Akshaya Patra: This is an NGO which provides mid-day meals to school children across several districts of Karnataka. Started in the year 2000, today Akshaya Patra runs 6 centralised kitchens in Karnataka - 2 in Bengaluru (HK Hill and Vasanthapura), and 1 each in Ballari, Hubballi, Mangaluru and Mysuru. Together these kitchens feed 4.63 lakh children across 2,629 schools. Implementing Right to Education Karnataka has been an early mover in implementing the much talked-about Right to Education Act (RTE Act). It is the only state in India have adopted an online lottery system to facilitate RTE admissions in a bid to make implementation transparent and fair. Currently, there are 11,202 schools in the state which come under the RTE Act.

Education

education are involved in promoting education for the girl child. In rural areas, where there may be some resistance to educating girls, initiatives need to be taken to address families, the village community, local governments, and of course, school administrators and teachers. Integrating gender perspective into school plans and teacher training helps promote the girls’ right to education within the community. Increase in compulsory age of education: Policy frameworks need to be strengthened to enhance girls’ access to and retention in school, such as increasing the compulsory age of education and raising the age for marriage. Improve linkage between various sectoral programmes: The problem of girls not attending schools is addressed at different levels by multiple government departments. There is a need to streamline different departmental processes for better synchronisation of programmes at the field-level to avoid duplication of initiatives and investments and to facilitate pooling and better utilisation of resources for improved impact. Allocate higher capital investment in education to northern Karnataka: This policy is to be followed to take care of the wide regional imbalances between the southern and northern regions of the state. The living standard of the poor is extremely low in northern Karnataka - insufficient rural housing, sanitation, female literacy, social change for Scheduled Caste and Tribes, as well as malnutrition and anaemia. These growth-debilitating factors have a bearing on the social standing of females in these societies.

Education for girls This brings us to the other critical issue of equal opportunities for girls in education. Although the female literacy rate is 68.1 percent, which is better than most Indian states, there is a need for intervention, both from the government and the private sector, for improving the status of girls in structured, formal education. This would be an imperative if Karnataka wants to achieve social equity through education. Some of the major initiatives in this regard are as follows:

Build partnerships with NGOs: There are a number of complicated issues related to girls being sent to schools in many families. Issues such as opportunity costs - incurred due to the family’s reliance on daughters for household chores or for child care - prevent girls from staying in school. Partnering with NGOs which work with girls on a range of programmes will help the government trace girls who drop out from school, counsel families, provide gender training to teachers, build capacities of School Development Management Committees (SDMCs), create safe school plans and influence and empower communities to tackle barriers that keep girls away from school.

Multi-stakeholder response mechanism: It is necessary that all stakeholders who have or may have a say in a girl‘s

Revive children’s participation in governance: The Karnataka government had established platforms like Makkala

72


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Education

More than 90% of children in Karnataka, like these students of My School, are enrolled in primary education. Grama Sabha and Makkala Panchayats (chidlren’s village committees) to conduct annual meetings of children between the ages 5 and 15 years in all Gram Panchayats. The state can revive such institutions as they go a long way in empowering children and youth and ensuring active participation of girls. These institutions and processes provide a voice to the deprived sections of society and also make the state’s job of identifying people who are in need of remedial policies, much easier. Higher Education Vision 2020 The ‘3E’ model adopted by the state as a part of its Vision 2020 for higher education stands for Expansion, Equity and Excellence. The objectives of Vision 2020 are: • Developing the state as a vibrant knowledge society • F  ocussing on job-oriented growth through skill development of the workforce It is proposed to achieve an increase in student enrolment in higher education from a Gross Enrolment Ratio (GER) of 18.1 percent in 2012-2013 to a GER of 35 percent in 2020, with actual numbers increasing from 12.6 lakh to 22.5 lakh. However,

Photo: Joe Lewis

one of the major challenges is to tune the curriculum to meet industry needs and standards. Karnataka Minister for Higher Education TB Jayachandra was recently quoted saying that the state will review the curriculum in order to ensure a better fit with industry requirements. In this context, training in vocational skills for youth who do not make it to the higher education system will have to go hand in hand with curricular changes. Essentially, the focus has to shift from degrees or diplomas to improving the employability quotient of youth. In recent months, the government has proactively taken steps to expand the reach of higher education. • In mid-2015, MoUs were signed with various partners to attract `1,800 crore ($ 272.3 million approximately) worth of investments for higher education. • A  new IIT is coming up in Dharwad and is expected to become functional from 2016. • In June 2015, the government launched a localised version of the TESS-India OER (Teacher Education 73


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Education

to create excellent academic laboratory and state-of-theart equipment. • E  xpand the intake into Master’s and PhD programmes in all universities by creating a comprehensive scholarship programme. • C  areer guidance and counselling cells be opened in all affiliated/autonomoaus colleges and post-graduate departments. Some teacher-centric strategies:

Source: Karnataka Economic Survey, 2014-15 through School-based Support).These high-quality Open Education Resources (OER) have been developed by The Open University, UK, in association with Indian experts and have been localised into Kannada by eminent people in the field of education. All the 105 Teacher Development Units have been released and will soon be integrated in teacher training in Karnataka. • In February 2014, the State Government announced the plan to set up an advanced research centre under Mangaluru University by using funds available under the Rashtriya Uchchatara Shikshana Abhiyana (RUSA) to promote development of human resources in science, technology, engineering, mathematics and other cuttingedge technology areas. Karwar is also slated to get a Central University with funding from RUSA. The government has worked out a policy framework and strategy of empowerment keeping in mind needs of both students and teachers. Some student-centric strategies: • A  llow all universities and colleges to start inter/multidisciplinary courses that combine science, humanities and technology. • S  tudents should have the flexibility to move from one university/college to another within the state and course credits should be transferrable. • C  reate quality hostel facilities in all state and government universities and aided colleges as a special facility for economically challenged. • The state should provide special grant to universities

74

• C  reation of Karnataka State Research Foundation with a minimum initial grant of at least `50 crore ($ 7.5 million approximately), governed by an independent board of governors consisting of eminent scientists, educationists and subject experts drawn from the public and private educational institutions. • Introduction of teaching assistantship in PhD programmes to enable the scholars to acquire experience in teaching at the college level. • F  aculty must have the freedom to move within a university and across universities in the state, and their benefits and seniority must be protected. • E  stablish international faculty exchange programmes with universities in other countries and industries. • E  xcellent faculty should be taken on a contract up to 5 years after retirement so that their services remain available. Curricular and pedagogy-related changes: • A  ll undergraduate courses should have the first year as a general course where students are exposed to a variety of academic topics. The second, third and subsequent years should be designed to have 70 percent mandatory courses in the subject of specialisation and 30 percent electives. • U  niversities must seriously consider introducing a 4-year undergraduate programme in the arts and sciences instead of the current practice of giving a degree in 3 years. • C  ontent should be created and technology leveraged to promote teaching in Kannada • A  ll universities/colleges should be networked with large capacity broadband so that education delivery and assessment can be done using technology.


RESURGENT KARNATAKA

INSIGHTS

Karnataka attracts students from different parts of India and neighbouring countries who flock to enroll in the various professional colleges in many parts of the state. Experts focus on the fundamentals of education from primary schools to employability skills, and the quality of education that would go beyond literacy to turning students into good human beings. They concur that the education sector would benefit from less regulation and more effective implementation of programmes.

Education

higher education that the development of the state can happen. This would help the children in Karnataka get the necessary qualifications for employment. Education institutes should match the growth of these sectors of industry; they will have to revise the curriculum to meet the needs of all the growth areas that are coming about to ensure that there is no big gap between what they produce and what the state and the industry want. Enlightened leadership at the state-level and in the department of higher education could ensure that higher education gives the skills to citizens to get good jobs. We need greater autonomy for all universities, and we need it in a hurry, because every year 5-6 lakh students graduate and come out into the job market. They need to have the skills that meet the requirement of market.

TV Mohandas Pai is Chairman of the Board of Manipal Global Education Services and Co-Chair of Task Group on Karnataka State Education Policy. Institutes of higher education should aspire to higher quality of education, he says. What are the growth areas in the higher education sector? The growth areas in the higher education sector will depend on the growth areas in the economy. The technology sectors IT, BT, nanotechnology, aviation sciences and aviation manufacturing, and defence R&D will grow. There will also be growth in 3D printing and robotics, life sciences, fashion and design. Alternative energy will have a very high growth path. How could institutes of higher education, especially professional colleges, offer relevant education? Over the next 15 years, growth in Karnataka will come from hitech industries which are highly skilled and which require highly skilled people. It is necessary to create a highly skilled workforce and that requires the government to encourage good institutions and also specialised institutions. This calls for substantial investment in higher education because it is only through

Vidya Jois, Principal of My School, talks about the specific challenges of private schools that cater to low-income families and welcomes the collaborative programmes offered by the new NGOs in the education sector. What is your assessment of the primary education sector? The positives in this sector in the state are: • O  fficers such as the Cluster Resource Persons and the Block Education Officers are hardworking and are interested in making a difference. • The teaching community is vibrant and willing to learn. • T  here are plenty of multimedia resources available through private sources, and there is endless information via the internet. 75


RESURGENT KARNATAKA

INSIGHTS

Education

• T  he Education Department has a full-fledged research wing that has developed innovative methods and training modules. What are the specific challenges faced by schools that are affiliated to the Karnataka State Education Board? The National Policy on Education is well-framed and it could be implemented properly if the quality of textbooks is improved. Currently, the state government schools reinforce the textbooks with alternative sources of material for teaching. This defeats the purpose of having textbooks. The innovative methods mentioned earlier should be not be restricted only to government schools but should also be shared with low-income private schools to help our students. Regular updates of the website of the Education Department would provide accurate information to schools. What immediate steps should be taken to achieve the Karnataka Vision 2020? Students graduate with degrees or skills, but they generally lack the powers of application and reasoning. Hence, along with exposure to skills, there should be more focus on techniques of thinking and decision-making right from a young age. Teamwork, working for a higher goal or cause, and developing a value system are imperative. It would go to show that corruption is unnecessary and that it impedes the growth of the individual. What steps should be taken by the government to prevent girls from dropping out of school? The government should promote education of girls not by luring parents with freebies but by educating them on the importance of education, constant monitoring with support groups and a structure to ensure it happens. Should the government replicate the Teach For India/ Learning Guarantee Programme model in government schools of other Tier-II and Tier-III cities? The quality of the trainee teachers of such programmes is very high; they are exceptional in their energy and drive, as they have chosen to contribute in this field. We have seen this happening in our school, where these qualities have made a difference in teaching. These programmes will certainly make a positive difference in other cities, too.

76

Nooraine Fazal, Chairperson, Inventure Academy, says that rules should not take precedence over quality of education. What are the specific challenges faced by Karnataka’s education sector? The challenges faced can be classified under regulatory, sustainability, quality and access. It is hard for institutions to be sustainable as education in India has a long gestation period with a high cost. Apart from issues like permissions to start a school and the language of education, the government should streamline rules that contradict each other and hamper the functioning of schools. How could the quality of education be improved? The purpose of education is probably the biggest challenge. I believe all of us have certain inherent talents, we have strengths, development needs, weaknesses and aspirations. Everyone learns differently. The education system has to drop the onesize-fits-all approach. How could society contribute to this sector? Students have grown more intolerant, which is a reflection of our society. Besides the parents and teachers, the wider community can help bring about a change in attitude. There is a role for the media, businesses and NGOs in creating an atmosphere of not only tolerance but also of respect and sensitivity. Parents and teachers should be in agreement that education comprises teaching students academic subjects, sports, life skills, and, most importantly, to be good human beings. Tolerance and respect can be built through exposure. In our school, the students go to local government schools to teach and learn.


RESURGENT KARNATAKA

INSIGHTS

V Raghunathan is an academic, author and CEO of GMR Varalakshmi Foundation. He says the state should concentrate on implementing recommendations and programmes that would improve the education sector. What are the specific issues that affect the higher education sector in Karnataka? Karnataka has to focus on improving the GER in higher education. It is 12 percent - this means that nearly 88 percent of youth in the 18-24 age bracket is not enrolled in colleges. Parts of north Karnataka have much lower GER, 5-6 percent! With Karnataka coming down hard on its private, low-cost, Englishmedium schools, the challenge assumes an even more serious proportion. What would help develop the state as a vibrant knowledge society? There should be an increased focus on the following: • Improving the schooling system, with added emphasis on English education to facilitate the knowledge economy. • Improving GER in higher education. • Research in institutions of higher learning. • S  killing through a strong schooling system that is dovetailed to vocational development. To improve further the cause of the girl child, the government ought to ensure functional toilets in schools – ideally separate for boys and girls, gender-sensitive teachers and good-quality teaching.

Education

Ramkumarr Seshu, Founder, Born To Win Learning Services, calls for a change in the pedagogy to enable the students to be future-ready. How can ITIs (industrial training institutes) continue to attract students? The shift away from ITIs has happened because they are wrongly positioned as the place for school dropouts. There are excellent growth opportunities for young people who learn a trade as a fitter, a turner, an electrician, or a welder. They get jobs that start at `10,000-`12,000 in companies like Toyota or Bosch. Within 3-5 years, they could be earning `40,000`50,000 a month. Compare this with someone who has just a BA, BSc., or B Com – the only job he/she can get is as an office assistant and will not be paid more than `6,000 a month; they will be struggling all their lives with `12,000–`16,000 a month. As for the soft skills training for the service industry, these are the very basics of communication for customer service and are not comprehensive. While the service industry offers a nice environment, the kids who work there cannot scale up their earning capacity substantially, as there is not much scope for growth. The opportunities for those who finish at ITI institutes are far more than those trained in soft skills for the service industry. What specific measures would help overcome the problem of unemployability? Industry and government should primarily help the students enhance their employability quotient. We have to teach them to work with passion, integrity and purpose. Processes such as strength audits and unique hiring proposition can enhance employability quotient. 77


RESURGENT KARNATAKA

Dr. Chenraj Roychand, Chairman of JGI Group & President of Jain University, says that higher education should focus on interdisciplinary innovation. What are the specific challenges that institutes of higher education, especially professional colleges, face in Karnataka? The first challenge is to recognise and respond to the different and multiple expectations of different stakeholders. A professional institute of higher education is a dialogue platform that brings together learners, facilitators and prospective employers. A major challenge is to get these groups engaged in a meaningful and productive dialogue. What are the growth areas in the higher education sector? Every sector of knowledge is a potential growth area as long as one brings in a flavour of innovation and creativity. The sky is the limit today in the domains of engineering, management, pure sciences and social sciences. My effort is to see that we focus on key areas of interdisciplinary innovation. We focus on food sciences, which brings together pure science and technology; nanotechnology, which is at the intersection of multiple domains of science and technology; climate change and energy management, which encompasses several domains of engineering, science, management and public policy; family business management, which involves not only management but also culture studies, psychology and sociology; and public policy, which stretches across management, ethics, politics, administration, economics and sociology. 78


11


NEW-AGE INDIA NEEDS NEW-AGE LEARNING. www.inurture.co.in

Let’s Start a Revolution!

The world is changing fast. The knowledge and skills that were in demand yesterday will be outdated tomorrow. This is why, at iNurture, we have endeavored to ensure that learning meets the needs of our time. We have collaborated with universities, autonomous institutions, and colleges to introduce undergraduate and postgraduate programs that prepare students for new-age careers. Meanwhile, our short-term corporate programs help professionals upskill themselves in fast-growing industry domains. If you are a decision-maker who inuences learning, then join us in the revolution. Industry verticals in which UG, PG and short-term programs are offered

For enquiries, contact

Cloud Computing

Institution Partnership

Information Security IT Infrastructure Management Services

Srinivas Shinde |

Mobile Application Web Technologies

Digital Marketing & e-Commerce

srinivas.shinde@inurture.co.in

Corporate Training Pramod Idiculla |

Big Data International Business

+91 9886037433 |

+91 9845056029 |

pramod@inurture.co.in

Placement Usha Rani |

+91 9900466416 |

ushar@inurture.co.in

Brand Management & Communication Financial Services Business Analytics Tourism & Hospitality Management ToonSkool New Media Edu. Design

iNurture Education Solutions Private Limited Niton Compound, # 11/4 A, Block – B1, Palace Cross Road, Bangalore – 560052 Toll Free: 1800 103 9103 Follow us @

|

Ph: +91 80-42576666

www.facebook.com/inurtureeducation twitter.com/inurture


RESURGENT KARNATAKA

INDUSTRY ENERGY OVERVIEW

Energy

Karnataka has the highest wind energy potential in India at 11,531 MW; and wind energy is being tapped as an alternative source.

Photo: Suzlon

Amping up the supply

83


RESURGENT KARNATAKA

84

INDUSTRY OVERVIEW

Energy


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Energy

Source: Karnataka Economic Survey, 2014-15

85


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Karnataka has 240-300 sunny days with good solar radiation of 5.4 to 6.2 KWh/Ml/day.

86

Energy

Photo: SELCO


RESURGENT KARNATAKA

INSIGHTS

Energy

S Chandrasekhar is Managing Director of Bhoruka Power Corporation Limited, a leading renewable energy developer. He is a Member of the Advisory Committee of State Electricity Regulatory Commission and of Reuters Insight Community of Experts (Renewable Energy) and former Chairman of Confederation of Indian Industry (CII) – Karnataka. The state can lead the country in renewable energy if it can ramp up solutions such as land conversion and power evacuation, he says.

87


RESURGENT KARNATAKA

INSIGHTS

Harish Hande is Chairman and co-founder of SELCO India, the country’s first social ‘for-profit’ enterprise working on rural solar energy access. He received the Magsaysay Award in 2011. Hande says the state should take a complementary approach to improving energy access through Decentralised Renewable Energy (DRE) solutions.

88

Energy


RESURGENT KARNATAKA

INSIGHTS

Energy

H Nandi is Managing Director of MRO-TEK, which provides data connectivity services and develops solar technology. He says that the use of alternative renewable energy must be made compulsory.

89


RESURGENT KARNATAKA

INSIGHTS

Energy

The Chinnaswamy Stadium in Bengaluru is the first stadium in India to be solar powered with a 400 KW solar power plant that was installed in 2015. The Karnataka State Cricket Association sells the excess power to the Bescom grid.

90


INDUSTRY OVERVIEW

HEALTHCARE

RESURGENT KARNATAKA

Healthcare

Healthcare in Karnataka is characterised by extensive use of technology, both in the public sector as well as in the private sector to ensure more precise diagnoses. Photo: Dr. Jagdish Rohira

Leveraging technology

The healthcare sector in Karnataka is turning out to be a classical example of the use of technology for greater public good. With the heartland of information technology in this part of the world located in its capital, Bengaluru, the state has leveraged technology to meet the primary objective of improving health indices. A strong technology backbone has helped deliver public health services to deep hinterlands, especially in areas which were reaching worrying levels. Reducing maternal mortality rate One such area of concern was the maternal mortality rate (MMR). In the period between 2001 and 2003, the MMR was 228 per 1 lakh live births and the state ranked ninth in the country. Ten years later, between 2011 and 2013, the MMR dropped to 133, a decline of a whopping 170 percent, taking the state up to the eighth position. This has been the highestever fall in MMR among all the states in the country (the

92

national MMR in 2013 was 167). This was achieved by critical interventions to address the severe problem of postpartum haemorrhage, after a complete review of reasons for maternal death. These interventions were: • E  nsuring that all babies are delivered by skilled birth attendants or in hospitals • Line-listing and tracking of high-risk pregnancies • E  nsuring protocol-based management of primary health centres (PHCs) and first referral units (FRUs) • Ensuring specialists’ services at FRUs • Making blood available in storage units Technology helped in reducing the time taken for communication within the government and facilitated an information system that provided updates from the level of auxiliary nurse midwives


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

to the FRU. The use of the very basic SMS-based mobile technology helped Karnataka become the first state in the country to track the health of pregnant women right up to the level of the sub-centre. The results were so impressive that the Central Government, which launched the Mother and Child Tracking System (MCTS), asked other states in the country to follow the SMS-based system of Karnataka. Fundamentally, the system helped in providing prenatal and postnatal care, literally, at the doorstep of the rural poor. It is noteworthy that MCTS in Karnataka has reached a depth of penetration that is unparalleled in the country. Elsewhere, MCTS works at the taluk level whereas in Karnataka, the information flow begins from the auxiliary nurse midwives who operate at the micro-local level. This is how the system works: The health worker identifies the pregnant women in her area and they are issued a ‘Mother’ card. The pregnant woman’s details are sent to the closest health facility that begins regular monitoring of her health status. Details of her health needs and the medical attention that she has received are all recorded on the MCTS. In turn, the mother is kept informed through an SMS of the services that will be provided by the staff at the ground-level. Once the child is born, a similar health status record is maintained. There is regular monitoring of the visits by the health worker to provide facilities like immunisation services. Reducing neonatal deaths The National Health Mission in Karnataka aims to bring down the MMR to less than 100 in 2016-17. While the MCTS has helped reduce MMR, neonatal mortality, which is death within 28 days of birth, has reduced by only 3 from 25 deaths per 1,000 live births in 2009 to 22 per 1,000 live births in 2013. Similarly, early neonatal mortality, which is death within 7 days of birth, has reduced by just 1, from 19 in 2009 to 18 in 2013. Understandably then, the state is focusing on reducing neonatal deaths. Infant mortality still remains an area of concern though the state is close to achieving its objective of reducing the rate to less than 30 per 1,000 live births. According to the last study by the Department of Health and Family Welfare Services, Karnataka’s IMR has fallen from 95 in 1971 to 31 in 2013. The number could come down further with the use of technology as the MCTS reaches out to more people in the rural areas. So far, 34.52 lakh pregnant women and 18.89 lakh children have been

Healthcare

registered under the MCTS. The total fertility rate (TFR) in the state in 2013 stood at 1.9. TFR is a notional calculation of the number of children that a woman would give birth to throughout her childbearing years. Close to 77 percent children in the state have been immunised as of 2013. Integrated approach To buttress its efforts at reducing risk to and improving the health of mother and child, the government has integrated several programmes under Thayi Bhagya, a comprehensive maternal care programme. One critical component of this is Madilu, under which a postnatal kit is provided to a new mother. This kit, costing about `1,380 ($ 21 approximately), is provided to all new mothers from BPL, SC and ST families in the districts of Bagalkote, Vijayapura, Ballari, Raichur, Koppal, Kalaburagi, Yadagiri, Gadag and Chamarajanagar. In fact, Madilu in Karnataka began long before Tamil Nadu decided to provide a kit containing 19 items useful to a postnatal woman and her infant. The government has launched several other programmes, including Arogyakavacha or an ambulance service, for prehospital stabilisation and referrals; Arogyasahayavani, which is an ambulance service for emergencies; and a ‘Bike Ambulance’ service, the only one of its kind in the country, which is a traumacare initiative to reduce deaths due to accidents. Inclusive health World Bank has given the thumbs-up to a state health scheme that gives hope to the economically deprived sections of society. After conducting a thorough study, it appreciated the way Karnataka has underwritten the expenses of treating poor people with terminal illnesses which has helped check mortality rate in poor families and reduced their out-of-pocket expenses. This health insurance scheme, called Vajpayee Arogyashree Scheme (VAS), basically, enables members from below-poverty level (BPL) families suffering from chronic illnesses relating to heart, cancer, neurology, kidney, burns, multiple trauma and neonatal issues to access super-speciality healthcare treatment. Since a majority of those seeking relief under this scheme hailed from north Karnataka, the government empanelled multispeciality hospitals in the neighbouring states, which together offer over 449 different surgical procedures along with 60 followup packages to BPL families. VAS has been expanded, post 93


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Healthcare

Source: Karnataka Economic Survey, 2014-15 the World Bank study, to cover neonatal treatment to include paediatric surgeries benefiting children with heart ailments. The latest figures show that about 10,000 paediatric surgeries have been conducted under this scheme. The World Bank study evaluated the impact of this scheme on 82,000 BPL families spread across 600 villages before giving the thumbs-up to Karnataka. In its view, this scheme showed that “public policy could play a strong role in reducing disparities in health due to socio-economic status.” The study also made an interesting observation that out-ofpocket expenditure (that is, amounts spent from the family budget on health-related issues) dropped by 60 percent and the risk of death decreased by 64 percent. The significance of its finding is that India is a country where private expenditure on health is a humungous 86 percent and all of it is directly paid by the patient for drugs and medical services. The thrust in tertiary care also comes from another scheme implemented by the Department of Co-operation. To be covered under the Yeshasvini insurance scheme, a beneficiary has to be a member of a rural co-operative society. The scheme requires a member to pay a minimal amount of money every month or annually (`230 ($3.50 approximately) a year) to avail of cashless treatment. When last accounted for in 201213, 30.36 million people had enrolled under the scheme. The success of this scheme can be gauged from the fact that it has now been extended to urban areas, since 2014, and has caught the attention of other state governments as well. Both VAS and Yeshasvini are successful private-public-partnership (PPP) 94

programmes. The process of constantly monitoring these schemes, particularly the VAS, has led to the formation of the Suvarna Arogya Suraksha Trust (SAST). The SAST, in turn, has effected several changes in the way health camps are conducted to identify the type of illnesses that are covered under the various schemes. Private hospitals also participate in these health camps to identify the patients and call them for regular check-ups to monitor their progress in pre-operative and post- operative care. The entire system is backed up by the Accredited Social Health Activist, or ASHA worker.

These workers (one per 1,000-population) create awareness about the tertiary diseases and are trained well in identifying the basic symptoms of a major disease so that the affected are immediately sent to the nearest network hospital for treatment. Here, too, technology plays a crucial role. The 35,000-plus ASHA workers are all linked by a mobile closed user group (CUG). The incentives to the ASHA worker have also been revised to ensure that their sense of participation in the well-being of the community remains intact. SAST’s monitoring has also led to the revision of the pricing for network hospitals, which were reluctant to treat patients suffering from neurological and renal health issues. During 2014-15, a total of 42,693 pre-authorisations had been approved at a cost of `230.28 crore ($ 33.9 million approximately) that is paid to the network of private hospitals. Critical PPP interventions Karnataka happens to be the only state, as of now, to have set up special neonatal units in government hospitals to identify infants suffering from ‘retinopathy of prematurity’ or ROP. It is a disorder that primarily affects infants who are born prematurely, before 34 weeks of gestation, and weigh 2 kilograms or less. This usually develops in both the eyes and can lead to lifelong vision impairment. In collaboration with the Narayana Nethralaya, Karnataka has been able to use telemedicine to identify children suffering from this disorder. Technicians use a portable, wide-field digital camera called Retcam Shuttle that


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Healthcare

The Karnataka Telemedicine project was launched by ISRO in March 2002, linking the Narayana Hrudayalaya, a super specialty hospital for cardiac care at Bengaluru with the District Hospital, Chamarajanagar and the Vivekananda Memorial Trust Hospital at Saragur. This link has provided immediate and affordable medical care to over 53,000 patients in remote areas of the state. Photo: Narayana Health captures the images of retina of infants. The images are digitally uploaded for review by the doctors at the private hospital. The identification of this disorder is critical for 2 reasons: it is the leading cause of infant blindness in the world, and India produces the largest number of premature babies in the world. It is estimated that 3.5 million out of the 27 million that are born annually in the country are premature. Hundreds of babies have been identified and referred to the local hospitals for treatment to ensure that they do not go blind permanently. At the school-level also, the state has introduced a screening programme to curb refractory error. Out of the 33.45 lakh children screened, for instance, in 2014, about 49,283 children were detected with refractory error, leading to nearly 37,786 children being provided with spectacles. At another level, the state has launched an effective campaign to educate adolescent girls across the board on menstrual hygiene – the effort is to ensure that girls do not miss their classes

during their menstruation. The government has a scheme under which 32.50 lakh adolescent girls have been provided with 13 packets of 10 sanitary napkins each per year. The number of beneficiaries is bound to increase in 2015, as the students and the teaching staff become more aware of the campaign. A similar kind of awareness prompted the government to provide dialysis units at even the taluk-level hospitals, 15 to start with, as of 2014. Again, using a technology platform, the government is monitoring all transactions online for accident-related trauma cases. A new programme, called the Mukhyamantri Santhwana Scheme (MSS), has been introduced to ensure that those who meet with accidents would get immediate attention at the nearest hospital.To avoid the usual issues in such cases of the accident victim’s family not being able to pay up the required amount to the hospital, particularly to private nursing homes, the government guarantees payment to the hospital, so that the patient gets medical attention in the golden hour. Interestingly,

95


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Healthcare

Karnataka is building an effective healthcare delivery system using the joint efforts of the public and the private sectors. Apart from using technology to bring healthcare closer to the rural areas, health camps organised by major hospitals and other organisations provide comprehensive check-ups. Photo: Rotary Club of Bangalore this scheme does not discriminate between a citizen of the state or a region or nationality. The challenges However, the biggest challenge for the health administration comes in the form of upgrading primary health centres (PHCs) to community health centres (CHCs). Basically, the role of the PHCs has been confined to being a preventive and curative outreach service for basic health. It connects the patient to a medical officer covering a population of 30,000. But the CHCs, which cover a population of 1.2 lakh, are manned by specialists, including a gynaecologist, a paediatrician, a surgeon, and a general physician, among others. If there are 2,353 PHCs in the state, there are hardly 205 CHCs. That is not all. There is a huge shortage of doctors at the primary level itself. The situation is not very different in the category of specialists either. Between the general doctors, specialists and paramedical staff, the current shortage is estimated to be around 21,000. This is despite the fact that Karnataka has been the pioneering state in the field of higher education, especially medical education, with a majority of the districts having at least 1 medical college. 96

The multiplicity of government departments engaged in rolling out health schemes and services also has created several execution bottlenecks. For instance, issues like nutrition and health insurance are subjects handled by the departments of Women and Child Development and Cooperation, respectively, while the issues of healthcare are the basic concern of the Health and Family Welfare Department. The Health Department may save the child and reduce the infant mortality rate, but the malnutrition caused by the kind of food supplied through various other schemes may harm the child at a later stage. It fundamentally calls for a holistic approach wherein the health and family welfare department would be the umbrella organisation. The state is now planning to use technology to dovetail all health schemes into one whole by amalgamating programmes from the Health and Family Welfare Department, the Women and Child Development Department, the Rural Development and Panchayat Raj Department. This is expected to be done through creating a Village Health Citation and Nutrition Committee, which would be headed by a grama panchayat member as chairman, and the auxiliary nurse midwife as the membersecretary. This would take community participation in healthcare in a logical direction and help create a more accurate health profile of the people of Karnataka.


RESURGENT KARNATAKA

INSIGHTS

An effective health delivery system which ensures that healthcare is available, affordable and accessible to all are the avowed goals of stakeholders in the healthcare sector. Private enterprise has led the way in many pioneering efforts, and healthcare practitioners are navigating a path ridden with problems such as permissions, infrastructure and human resources.

Healthcare

Yeshasvini, has been replicated in Andhra Pradesh, Tamil Nadu, Maharashtra and many other states across the country. Karnataka is in the unique position of maintaining these schemes on a true public-private partnership with members paying the premium at regular intervals and the government acting like a reinsurer rather than the entire funding agency. Telemedicine projects have been operationalised in many districts in Karnataka. Do you think the results have been promising? Technologies like telemedicine have definitely made an impact in the healthcare delivery mechanism. However, its full potentialities have not been exploited in any part of the world. It is a matter of time before it becomes a very important tool in day-to-day delivery of healthcare.

Dr. Devi Prasad Shetty, cardiac surgeon and Chairman & Executive Director, Narayana Health, pioneered both telemedicine and micro health insurance in India. He talks about the status of healthcare in Karnataka. What is Karnataka’s position in terms of social healthcare enterprises? If someone born into a poor family in this country requires complex heart surgery or a brain operation, he/she should be born in the state of Karnataka. It is because this is perhaps the only state in the country where everyone is entitled by some or other social scheme like Yeshasvini, Vajpayee Arogyashree, Jyothi Sanjeevini and others. Virtually everyone is covered in this blessed state today, so social development in Karnataka is definitely far ahead of many other states in northern and eastern India. Karnataka has pioneered many schemes one of which,

What can Karnataka do to increase its attraction as a destination for medical tourism? Narayana Health in Bengaluru alone gets over 30 medicaltourist patients a day from different Asian and African countries. With better international flight connections and multiple flights, medical tourism in Bengaluru is growing rapidly. Medical tourism has always developed in states and countries where there is a tradition of leisure tourism. We need to create friendly visa rules and a positive experience for visiting patients. Most countries offer a special visa for the medical tourist. However, in India, medical tourists pay much more than regular tourists do just for procuring the visa. When they are from some of the neighbouring countries, they need to visit the police station at regular intervals. This is not a happy experience for a patient who is here for a heart or a brain operation. Bengaluru can become a healthcare designation for medical tourists because of the large talent pool of doctors originating from Karnataka, which trains the largest number of doctors in the country. Brand Bengaluru has a great brand recall across the world because of its reputation in the IT world and can be easily marketed across the world.

97


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Healthcare

clinicians in India as well as in Karnataka. Only 20 percent of beds serve over 70 percent of the population that live in rural Karnataka. We have the challenge of doctors who are reluctant to move to rural areas. With the low number of doctors graduating every year, it will be difficult to catch up and bridge this huge gap if we take a conventional approach. One way forward could be to combine the telemedicine approach with quality tele-solutions and robust clinical decision support systems, which can help clinicians serve more patients remotely. This will also help train available technicians and staff at rural health centres deliver healthcare. In the past, the quality and the maturity of tele-solutions that have been used to enable telemedicine has not been very good, but things have changed in India and globally, too. Srinivas Prasad, CEO, Philips Innovation Campus, elaborates on the need for an innovative approach in healthcare. What are the challenges faced by the healthcare industry in Karnataka? The top three challenges in the healthcare system are: high out-of-pocket spend, lack of infrastructure, and accessibility to care. The population covered by health insurance is negligible at less than 5 percent and there is a shortage of health workers. We need a strategy of centralised diagnosis and treatment coupled with decentralisation of screening and chronic-disease management and home care to increase the accessibility and affordability of healthcare. In low-resource countries like India, we not only need to use existing infrastructure but also have to innovate on new solutions, products, and infrastructure to help people access healthcare. What is the potential for telemedicine? The success of telemedicine, which was launched in Karnataka in 2001, has received mixed reactions. In the private sector, some hospitals have effectively utilised telemedicine to reduce costs, and to improve the quality and distribution of care. There is a huge shortage of infrastructure and qualified

98

To overcome some of these challenges of accessibility, there are tele-solutions like the Intellispace Consultative Critical Caresolution, which remotely monitors ICU beds in any geographical part of India or the world from a centrally located command centre. Another solution providing emergency cardiac care is a handheld, portable, easy-to-use, 12-lead-tablet-based ECG device that can send ECG’s (encrypted) in real time to a cardiologist in a Tier 3 hospital or anywhere in the world for quick diagnosis of a heart attack. Along with this, one can equip local GP doctors with the instrument to address any emergency cardiac cases and provide timely help. This will ensure speed and accessibility to healthcare. Another way could be to invest in a robust public-private partnership. This will help in the decentralisation of healthcare to a large extent; private players can support with clinical expertise and the government can pitch in with infrastructure. Telemedicine has great potential in Karnataka and across the country, and can help in the decentralisation of care. A focused effort and investment from the government in this regard will ensure that healthcare in Karnataka will be accessible and affordable to all.


RESURGENT KARNATAKA

INSIGHTS

Healthcare

medicine has been attracting people from different parts of the world much before the allopathic hospitals were attracting patients for cost- effective surgeries.With better promotion by the tourism and health departments and a collective promotional policy, Karnataka has potential to develop as a medical tourism hub.

Dr. Issac Mathai Nooranal is a specialist holistic physician and Founder, Chairman, Managing Director & Medical Director at SOUKYA International Holistic Health Centre. A Health Advisor to the British Royal Family, he talks about the lure of Yoga therapy and Ayurveda. What accounts for the growing appeal of alternative healthcare in Karnataka? India is a country which practises the largest number of systems of medicine. Indian systems of medicine focus on prevention and health improvement. Many systems of medicine have originated in India, out of which Ayurveda is one of the most sought-after. Ayurveda, which literally means Science of Life, is an ancient medical science which was developed 5,000 years ago. Karnataka and Bengaluru have the largest number of medicine systems like Ayurveda, Yoga, Naturopathy, Unani, Siddha and Homeopathy in practice. With these systems of medicine, there is a lot of potential to treat diseases like neurological disorders, liver disorders, strokes, mental and muscular dystrophy, skin disorders, rheumatic and chronic conditions. Naturopathy is very effective for detoxification as well as stress management and several other medical conditions. Karnataka has Yoga centres like Svyasa Yoga University, Ayurvedic and Naturopathic colleges like SDM College of Medical Sciences, Foundation for Revitalisation of Local Health Traditions (FRLHT), and world-class institutions like SOUKYA International, Jindal and Shreyas. The Ayurveda system of

Dr. Thomas Chandy is Chairman & Chief of Orthopaedics, Hosmat Hospital, Bengaluru. The hospital has grown from being an orthopaedic speciality hospital into a multispeciality hospital. Dr. Chandy talks about the challenges in offering affordable healthcare. What are the challenges faced by mid-range hospitals that occupy a middle space between government hospitals and super-expensive private hospitals? How could the government help? The challenge is the high cost of running and maintenance. Trying to provide low-cost treatment for the poorer sections of society is a challenge. The government could support us by reducing the number of taxes and the level of taxes, and by granting approvals for expansion of buildings and addition of facilities. Is there sufficient insurance cover for patients? The public depends on private hospitals for speciality care. It is a challenge to offer healthcare to patients who cannot pay. Only 10 to 12 percent patients have some kind of proper insurance coverage; the government schemes pay 20 to 50 percent for treatment of various diseases, surgeries and injuries. Hospitals like ours give concessions to people who cannot afford payment, with the help of charitable trusts. 99


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Healthcare

but, instead of working where they are needed, they start postgraduate studies. There is a shortage of nurses, too, in Karnataka, as not enough people come forward for the nursing profession and we rely on nurses from other places. Without nurses, you cannot run a hospital.

Dr. Sita Bhateja is the Founder of Sita Bhateja Speciality Hospital, which has grown from being a specialist in obstetrics and gynaecology into a multispecialty hospital. Dr. Bhateja stresses the need for inclusive healthcare. Apart from the Nagu-Magu scheme, which provides ambulances to post-natal mothers and their babies to stem the increasing rate of maternal and infant mortality in rural areas post-childbirth, what other measures are needed? The urban populace has access to all the facilities such as numerous hospitals with delivery rooms and children’s hospitals, but things are not the same even 20 km away from a city, and it gets worse the further a place is from the urban centre. The challenge here is that the medical sector is very short of personnel. Every year, over a thousand doctors qualify,

100

Another challenge is the lack of infrastructure. The government is supposed to provide the infrastructure, which exist in some places and are nonexistent in others. The roads to bring a sick mother to a high-end hospital are not adequate. We are working with the Association of Gynaecologists to launch a maternity ambulance staffed with an entire team that would offer 24- hour support to mothers in mofussil areas that lack equipment and facilities. Is more private participation a solution? The government cannot meet all the needs and expects the private sector to pitch in. As the private sector would need to put in a lot of inputs, it looks for profits, making it unaffordable for the urban poor. Private hospitals should temper their service with humanity and extend them to rural areas, too. The urban poor go to government hospitals, which are overcrowded, have insufficient beds, and have overworked doctors and staff. The solution would be to set up more hospitals for the poor. But, then again, you come up against the problem of shortage of personnel of not only medical and administrative staff but also cleaning and maintenance staff. Human resource is the biggest problem and needs attention.


INFRASTRUCTUREInfrastructure

RESURGENT KARNATAKA

Kempegowda International Airport, Bengaluru, built under the public-private partnership programme, is the largest airport in south India and is among the top 3 in India in terms of passenger traffic. Photo: BIAL

Getting ready for tomorrow For a state like Karnataka, which has been at the forefront of industrial growth, the need for matching infrastructure cannot be overstated – more so since it has huge ramifications for growth rates, urban space management, human development index and overall quality of life. The state recognised the need for focusing on infrastructure creation early on and set up the Infrastructure Development Department (IDD) in 1996. The department was mandated to work on a strategy for effective implementation of projects, identifying needs and creating solutions while at the same time mitigating the risks arising out of blocking public funds in long-gestation projects. Public-private-partnerships (PPPs) were identified as a critical component of moving ahead, especially in the case of large-scale projects where joint financing ensured that risks were shared. It was also expected to ensure timely implementation. However, PPPs have various models, some quite complex, creating their own set of issues.

Any strategy for infrastructure creation has to take into consideration several on-ground needs. To begin with, decongesting Bengaluru is an imperative. The state’s Bengalurucentric growth has meant that more and more people have come into the city over the years, making demands on housing, water, sanitation, electricity, roads, markets, etc. Secondly, the state needs to correct regional imbalances and this can only be done through better connectivity and adequate infrastructure to other parts of the state. Actually, the two activities are complementary, as other towns will have to come up to speed to take some pressure off Bengaluru. Thirdly, some investment in infrastructure may not be commercially rewarding but are needed to create social equality. For example, educational institutions, healthcare facilities, local markets for livelihoods and the like need to be built so that growth can be balanced and inclusive. Fourthly, agriculture and agrirelated businesses like food processing need marketplaces, yards,

103


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

warehousing and storage facilities that can give the sector a much-needed push. Infrastructure creation and land have an intricate and compelling relationship. One cannot do without the other. Yet, one adds to the cost of the other. The spiralling land prices, especially in and around Bengaluru, has as much been a result of construction activity as it has been a bottleneck for development. Add to this the maze of land acquisition policies and processes. The State Government has tried to address the issues relating to infrastructure development in a policy, framed in 2013, which was an updated version of the earlier policy, and it prescribed estimated investment needs by 2020 in some of the most important sectors, as follows: • Railways – `25,600 crore ($3.8 billion approximately)

Infrastructure

Way forward for PPPs The state has recognised the value of PPPs and standalone private projects to bolster infrastructure development. For instance, the construction of the Bengaluru-Mysuru Infrastructure Corridor was handed over to private players - even the Elevated Light Rail Transits system in Bengaluru has been jointly handled by the government and private investors. Going forward, increased PPPs are being envisioned in the development of roads, bridges, seaports, airports, water supply schemes, sewage disposal systems, urban transport systems, tourism infrastructure, industrial estates and parks, agriculture and horticulture markets. As of 2014-15, there were 266 PPP projects in Karnataka, according to data from the Department of Economic Affairs of the Central Finance Ministry. Some of the important projects being developed under PPP are:

• Roads – `1,38,900 crore ($20.7 billion approximately)

• International Convention Centre at Devanahalli

• Energy – `85,000 crore ($12.6 billion approximately)

• Airport at Hassan

• Ports – `7,500 crore ($1.1 billion approximately)

• S  ix-laning of Belagavi-Dharwad section road and other road-upgrading projects

The Infrastructure Policy of 2013 estimated that, by 2020, 8 percent of GSDP would need to be invested in infrastructure. This would entail an annual investment of almost `30,000 crore ($4.5 billion approximately) till 2020.

• Water supply schemes in Mysuru and Nanjangud

In line with the Planning Commission projections, the state was to raise cumulatively about 50 percent of the required investments through the PPP route. Prior to this, in 1997, the State Government had articulated an exclusive Infrastructure Policy, which had 3 main outlined objectives:

• Redevelopment of Malleswaram market

• T  o ensure that infrastructure facilities in the state are sufficiently expanded and upgraded to meet the growing requirements of industrial and agricultural sectors and population growth • T  o facilitate and attract private investment and participation in developing infrastructure • T  o adopt a co-ordinated and integrated approach to infrastructure development The 1997 policy was revised a decade later and was re-launched with the objective of providing a fair and transparent policy framework to encourage PPPs in upgrading and expanding infrastructure development. 104

• Integrated solid-waste treatment facilities at Belagavi, Kannahalli and Mavalipura • Power transmission line at Kudgi

• Mechanised iron-ore handling facilities at NMPT In fact, the lion’s share of PPP projects are in the area of transportation and logistics where there are 12 projects under implementation at a cost of `2,086.33 crore ($ 312 million approximately). Another 75 projects worth `87,209.66 crore ($13 billion approximately) are in the pipeline. There are 3 projects each in urban and municipal and healthcare infrastructure, costing `56 crore ($8.3 million approximately) and `3.27 crore ($488.8 thousand approximately), respectively. A total of 179 projects are at the planning stage across all sectors and are cumulatively estimated to cost `147,941.52 crore ($22.1 billion approximately). PPP or joint investments models take various shapes. The government can allocate projects through open competitive bidding or by executing a Memorandum of Understanding with a private partner. Several types of agreements - such as


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Infrastructure

($150 million approximately), the government may consider the grant of further concessions/incentives which are directly related to the project, depending on the merits of each case. For projects which are socially relevant but may not offer adequate returnon-investment, the government has the option to use other compensation mechanisms like Viability Gap Funding (VGF).

Source: Karnataka Economic Survey, 2014-2015 Build-Operate-Transfer (BOT), Build-Own-Operate (BOO), BuildOwn-Operate-Transfer (BOOT), and Build-Operate-Share-Transfer (BOST) - can be drawn up depending on the service required. However, keeping in mind that infrastructure projects have long gestation periods, huge sunk costs and a very slow investmentrecovery cycle, the government needs to provide additional incentives for fuelling private investment to meet demand. Some of the steps undertaken by the government so far are: • E  xemption from payment of entry tax on machines, equipment and capitals goods and construction material procured for implementation of infrastructure projects. • E  xemption from sales tax/works contract tax for construction of infrastructure. • 1 00 percent exemption from payment of stamp duty and registration charges on the first sales of land in the case of infrastructure projects that involve second sales of land, such as industrial parks. • 1 00 percent exemption from stamp duty and no registration charges on transfer of land specially required for the construction of roads on BOT/BOOT basis. • G  overnment land may be provided, subject to availability, at concessional rates, except in corporation and city municipal council areas. • T  he investor will be allowed to charge users fees (tolls, port dues, etc.) during concessional period.

To overcome some of the challenges associated with developing projects under the PPP model, especially issues of ideation, capacity building and transparency, and build sustainability, IDD has designed and activated the Karnataka Infrastructure Transformation-1 (KIT-1) plan. KIT-1 has a programme-based approach, covers all sectors and multiple initiatives and helps with PPP institutionalisation, initial capacity building, and updating management information systems and sector profiles and inventory. The programme has generated 120 projects spread over 7 sectors and 12 entities with a total project value of `1 lakh crore ($15 billion approximately) along with an additional `99,451 crore ($15 billion approximately) earmarked for earlier projects. Some critical sectors Urban and municipal infrastructure: The state budget for 2015-16 announced plans to improve the infrastructure in 211 urban local bodies in Karnataka. A sum of `12,630 crore ($1.8 billion approximately) has been earmarked in the budget for urban development. The budget also announced plans to build 50,000 affordable houses in urban areas. Karnataka has 7 city corporations, 41 city municipal councils, 94 town municipal councils, and 68 town panchayats. By August 2014, 54 projects worth `4,465 crore ($ 668.8 million approximately) were sanctioned under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Some of the key areas of focus are roads, flyovers, water supply, storm water drainage, sewerage, waste management and urban transport.

• For  projects involving investments of over `1,000 crore 105


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Infrastructure

Over 1,500 km of roads across the state are proposed to be rolled out through 23 projects. Industrial infrastructure: The Karnataka Industrial Areas Development Board has developed 141 industrial areas in different parts of the state. As of 2014-15, there are 26 operational Special Economic Zones (SEZ), 40 notified SEZs, and 61 others in various stages of approval. The state plans to develop and upgrade 8 clusters around Bengaluru at an investment of `2,326 crore ($348.4 million approximately). The state’s Industrial and Infrastructure Development Corporation has provided funding support to core industries such as steel, cement, mining and textiles and newer sectors like IT, aerospace and telecom. It has also supported a large number of startups. Social infrastructure: Karnataka is home to premier institutes of higher learning. Historically, the state has had a strong participation of private colleges in the academic network. In 2015, the government signed key MoUs to attract further private investments in higher education. A new IIT was announced. Karnataka ranks fifth among all Indian states and Union Territories, with 44 universities. There are 4,519 pre-university colleges, 293 polytechnics, and 206 engineering colleges. In healthcare, the state’s mission is to establish one primary health centre for every 30,000 people, one dispensary for every 15,000–20,000 people, and one sub-centre for every 5,000 106

Photo: Kashif Masood

people. There are 20 district hospitals, 29 teaching hospitals, 12 other hospitals, 206 community health centres, and 146 general hospitals at the taluka-level. Additionally, there are 2,355 primary health centres, 8,871 sub-centres, and 660 local dispensaries. Infrastructure corridors: The State Government, with support from the Centre, is developing 2 inter-state infrastructure corridors aimed at accelerating economic integration and encourage industrial activity. • T  he Chennai-Bengaluru-Chitradurga Industrial Corridor (CBCIC): The CBCIC will connect Chennai, Sriperumbudur, Ponnapanthangal, Ranipet, Chittoor, Bangarupalem, Palamaner, Bangarpet, Hoskote, Bengaluru and Chitradurga. This project is being realised with technological assistance from the Japan International Cooperation Agency (JICA). • T  he Bengaluru-Mumbai Economic Corridor (BMEC): This connects Pune, Satara, Kolhapur, Belagavi, Dharwad, Davangere, Haveri, Chitradurga and Tumakuru. It is supported by the UK Government. The Karnataka Industrial Policy 2014-19 proposes to set up 7 State Industrial Corridors (SIC) in the hope that this will lead to


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

sustainable industrial development in the state. The corridors will join: • Bengaluru-Mandya-Mysuru-Chamarajangar • Chitradurga-Ballari-Kalaburagi-Bidar • Dharwad-Koppal-Raichur

Infrastructure

tonnes of cargo annually, making it the third largest airport in the country. Construction of a second parallel runway and terminal (T2) is under way and is expected to be commissioned soon. This will increase the capacity of the airport to handle 35 million passengers a year. Minor airports at Shivamogga, Kalaburagi, Bijapur, Hassan and Ballari are being developed on PPP. Work on the Hassan airport has started.

• Bengaluru-Hassan-Mangaluru • Chitradurga-Haveri-Karwar • Tumakuru-Shivamogga-Honnavar • Raichur-Bagalkot-Belagavi Roads: The budget for 2015-16 allocated `1,107 crore ($165.89 million approximately) to improve bridges which link major roads in the state. In 2015-16, under the Namma Grama Namma Rashte scheme, the state has announced plans to construct 3,855 km of roads. Under the same scheme, 2,118 km of roads were constructed in 2014-15. The last budget also announced plans to construct concrete roads in tribal areas.

Metro: Bengaluru became the fourth city in India to get a rapid transit system when the purple line of the Bangalore Metro was inaugurated in 2011. The metro rail network in the city is being developed and implemented by Bangalore Metro Rail Corporation Ltd (BMRCL), a joint venture between the state and the Central governments. The metro network is being built in 3 phases. Phase I covers 42.3 km and 40 stations. So far, 94 percent of phase I has been constructed, and the government hopes to complete it by March 2016. Phases II and III will span lengths of 72 km and 133 km, respectively.

Ports: Karnataka has a coastline of around 300 km. Karwar, considered as one of the best natural harbours, is being upgraded under the Port Development Project. The state government has decided to start container handling facilities there. There are 13 ports in the state, of which New Mangaluru is a major one. There are 10 minor ports between Karwar and Mangaluru. Hinterland connectivity is an integral part of developing ports. Since a major portion of coastal Karnataka borders the eco-sensitive Western Ghats, obtaining environmental clearance for transport infrastructure poses a challenge. A court order has restricted development of projects in the Western Ghats areas.

Bengaluru Vs Rural Karnataka spends the highest-level per capita for development when compared to other Indian states. The per-capita development expenditure in Karnataka in 2013–2014 (budget estimates) was `13,246 ($200 approximately) against a national average of `9,535 ($143 approximately).

Airports: Kempegowda International Airport was the one of the first airports in the country to be developed on a PPP basis. It was developed on the BOOT model with a concession period of 30 years. The project was financed through a combination of equity, government grant and debt. Developed at a cost of `2,470 crore ($372 million approximately), the airport is of international standards and handles over 15 million passengers and over 2 lakh

Yet, the state is a picture of contrasts between the economic progress of Bengaluru and undeveloped rural pockets, especially in north Karnataka. This is what creates a major dilemma for the planners who need to use infrastructure creation as a tool to restore parity. After all, infrastructure is that fulcrum which catalyses rapid economic progress and financial growth.

Expenditure on the social sector rose significantly from 5.92 percent of GSDP in 2008-2009 to 6.87 percent of GSDP in 2014-2015, as has expenditure on economic services - from 4.15 percent of GSDP to 6.86 percent of GSDP.

107


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Amping up the infrastructure is the key to the state’s development, and PPP is the magic mantra that both the government and the private sector have been enthusiastically chanting.

Infrastructure

recognized as an airport that sets the bar in the very competitive Asian region, when we were awarded the prestigious ‘Best Regional Airport in Central Asia’ by SKYTRAX World Airport Awards in March, 2015. Would you recommend additional measures to increase the effectiveness of the Karnataka Infrastructure Policy? The Karnataka government had the foresight to understand that only by adopting a PPP model can the infrastructure development be bolstered. Importantly, the single window clearance clearly shows the government’s commitment to potential partners.

GV Sanjay Reddy is the Managing Director of BIAL and the Vice Chairman of GVK, a leading Indian conglomerate with diverse interests. Reddy says PPP (public private partnership) in infrastructure development is ready for the next level of growth. What has been your experience in the infrastructure development sector in Karnataka? Karnataka has established itself as a role model for infrastructure development through its visionary policies and strategic leadership. Take the Kempegowda International Airport, Bengaluru (KIAB, built and operated by GVK), which is the first green field airport in India to be built on the PPP model and handles over 17 million passengers per annum. It has pioneered many operational innovations such as collaborative decision making, which requires significant process investment and management commitment. The outcome: better on-time performance, faster turnaround, greater efficiency and smarter decisions. The Karnataka Government has recognised that high quality infrastructure is a means to achieving rapid growth, and that the private sector plays a key role in providing world class infrastructure. Through its infrastructure policy, the government has provided a transparent and fair framework to enable and encourage private participation. It is only through the continued support of the government that we have been able to scale rapidly since KIAB commenced operations in 2007. Today, KIAB is the largest airport in South India and amongst the top three airports in India in terms of passenger traffic. We have been 108

Given the rapidly changing demographics in the country, it is imperative that the government move the 3P model to the next level of maturity, and the Karnataka government should take the lead in this direction. It is imperative that the government strengthens the three key pillars of PPP framework viz., Governance, Institutions and Capacity, to build on the established foundation for the next wave of implementation. Do you have any suggestions to increase the productivity of the PPP model? The PPP market has brought about a paradigm shift in how we, as a country, approach infrastructure development. It has been proved that the 3P model provides the best success route in India’s quest to build world class infrastructure. Not surprisingly, India today, offers the world’s largest market for PPPs. In fact, the erstwhile Planning Commission expected private investments to contribute 50 percent to total infrastructure investments worth $ 1 trillion in India, during the 12th Five-Year Plan (FY12–17). We must look into setting up a national-level institution to support capacity building activities. Typically, infrastructure projects span 20-30 years over which time the (private) developer loses power over tariff and other economic matters, hence the private sector must be protected against an ‘Obsolescing Bargain’-the loss of bargaining power over time by a private player in PPPs. It should be easier to renegotiate concession agreements or make amendments since there are higher chances of PPP projects becoming distressed over time due to emergence of risks that were not factored at the time of drawing up the concession agreement. We need independent


RESURGENT KARNATAKA

INSIGHTS

regulators in all sectors going in for PPPs, to ensure a fair and transparent framework. The availability of high-quality infrastructure and the overcoming of India’s infrastructure deficit are crucial to attaining and sustaining rapid growth that generates the right kinds of jobs. As the PPP market in infrastructure matures in India, new challenges and opportunities have emerged and will continue to emerge. PPPs can only be successful if there is a change in attitudes and mindsets of all the authorities including public agencies partnering the private sector, government departments supervising the PPPs, and auditing and legislative institutions providing an oversight of the PPPs.

Infrastructure

What are you looking forward to in the new infrastructure policy? I would look forward to speedy clearances which would be beneficial to all parties from the public to the government to the investors and the other participants and contractors.

Premchander Reddy, Executive Vice President, Nagarjuna Construction Company Ltd (NCCL) that operates in various segments of the infrastructure business. Reddy says that a practical infrastructure policy is the need of the hour.

M Venkat Rao is the Director of MVR Infra Projects which has completed several construction projects across the country. Rao says that speedy land acquisition would boost the infrastructure sector. What additional areas do you think the state has to lay emphasis on to support the industries in the state? The PPP model has so far has benefited the state. I would say that the land acquisition process for government projects should definitely be made simpler. The government can help improve payment cycles and speed up clearances. Delays in clearances lead to a huge cost for investors; especially the land acquisition process takes a very long time and adds to the overheads. The government has to ensure that these policies are implemented as per the timeline agreed.

How do you view the state’s interventions in the infrastructure segment? It is the absolute responsibility of the State Government to create a proper infrastructure before any growth. The Government has to invest, it has to find various avenues to generate money and concentrate on infrastructure. A proper road is a basic necessity of life, along with water and electricity. What are the key infrastructural amenities that the industries are concerned about when they plan to establish in a town? Connectivity to Tier 2 & 3 locations is a key issue. Its necessary to do two things: 1) improve the infrastructure in Tier-2 and Tier-3 cities so that the pressure shifts there and 2) improve Bengaluru’s infrastructure to support its growing population.

109


RESURGENT KARNATAKA RESURGENT KARNATAKA

We TakeInfrastructure Pride in Nation Building Airports

Energy

Satish Parakh is MD of Ashoka Buildcon Ltd, a leading highway and roadway developer with a portfolio of over 28 PPP projects across 9 states in India. It is time for the state to scale up the size of PPP projects, says Parakh. What is your experience as an infrastructure development partner in Karnataka? We are working with the Karnataka State Highway Improvement Project (K-SHIP) on the Mudhol-Nipani and Badami Bypass and also with the Karnataka Road Development Corporation. Our experience of working in the state is excellent; we find that these institutions are very proactive in their approach, right from handing over land to execution of works. There is very close monitoring of projects via Telegram™ (an instant messaging App); it allows stakeholders to flag a query or difficulty and have it resolved early. How has the implementation of the Karnataka Infrastructure Policy helped boost development of infrastructure amenities? Karnataka is one of the earliest states that had started projects on annuity basis and it has a grant component which is paid upfront prior construction. This new model is now being adopted by other states. Karnataka has been a role model for other states. I find that Karnataka is quite fast and effective in implementing plans. Payments are made very smoothly for contract biddings and annuities are paid in time. The state government can help increase efficiency and effectiveness by faster processing of stone quarrying and stone crusher permissions. How can productivity of the PPP model be enhanced? Karnataka’s model is definitely working well, and it is time to increase the size of the projects from small works of `200-300 crore to larger projects of `500 crore-plus. Going in for largersized projects would attract better-quality contractors.

Urban Infrastructure

Transportation

Operating Airports in India which are amongst the world’s best Powering the Nation’s march towards prosperity Providing connectivity through modern Highways Creating Special Investment Regions with integrated infrastructure to boost Indian industry

Airports

Energy

Transportation Urban Infra

www.gmrgroup.in

Foundation


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Information Technology INFORMATION TECHNOLOGY

The IT sector employs more than a million people directly and more than 3 million people indirectly, making it the biggest employer in Karnataka. Women comprise almost 25 percent of the total workforce. Photo: SAP

Buzzing beyond Bengaluru

There cannot be a better example than Bengaluru of public policy determining the place for a city on the world map. The sector has continuously faced up to new challenges, reinventing itself, time and again, to keep growing. It is now seamlessly moving on to SMAC (Social, Mobility, Analytics and Cloud), meeting the changing demands of customers worldwide.

It is not only about innovation but also speed. Months have got seamlessly converted to weeks, if not days, as customers of Karnataka’s IT sector try to keep pace with end-users across the globe who are adapting to newer and faster ways of doing business. In other words, life is moving at a pace that the world has not seen before, and Bengaluru is rushing to keep in step.

Small wonder, then, that the capital of Karnataka is the world’s fourth largest technology cluster, after the Silicon Valley, Boston and London. The sector is bracing itself to scale up on multiple fronts, from exports to skill sets to technology, to meet the new demands for innovation.

As in the past, the city is facing up to the new challenges in its own quiet way. Yes, urban infrastructure is creaking, traffic jams are killing precious time and people are complaining now more than ever before. But the city has maintained its lead, among 6 other cities in the country, and retained its share of

116


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

40 percent of India’s total software exports of `4.3 lakh crore ($65.2 billion approximately). According to the National Association of Software and Services Companies (NASSCOM), the Indian IT sector is expected to grow at the rate of 11 percent a year and triple its current annual revenue to reach `23.11 lakh crore ($350 billion approximately) by fiscal 2025. Of this, the domestic market is expected to be worth `4.6 lakh crore ($70 billion approximately). If Karnataka retains its share of the total exports, by 2025 its value would jump to `7.4 lakh crore ($112 billion approximately). SMAC With practically everybody getting on to social media, smartphones driving information consumption and applications, analytics determining the choice of buyers and cloud computing playing the role of a bank locker, the industry has shifted focus to SMAC. Unlike in the past, customers are no longer waiting to tell the industry what they need. They are expecting the latter to provide solutions that they can just pick up and hit the ground running. The catchword is ‘digital’. So, what makes the transition critical? Active internet users in India alone account for 350 million with a penetration of 27 percent of the total population of 1.28 billion. Active social media users number 134 million with a penetration of 10 percent. Internet users on mobile devices account for 159 million, or 45 percent, of all internet users. According to a report by the Boston Consulting Group and Internet and Mobile Association of India (IAMAI), India’s internet economy is expected to touch `10 lakh crore ($151.6 billion approximately) by 2018, accounting for 5 percent of the country’s GDP. Public cloud-services revenue in India is expected to reach `5,500 crore in 2015 ($832 million approximately), according to a report by Gartner Inc. Growing at a compounded annual growth rate (CAGR) of 30 percent approximately, this segment is expected to touch ` 46 lakh crore ($700 billion approximately) by 2020, representing the largest opportunity for IT firms, followed closely by social media, which is expected to offer a market of `16 lakh crore ($250 billion approximately) by 2020. Clearly, the potential for growth is for all to see. This is an opportunity that Karnataka’s IT sector needs to seize. The fact

Information Technology

is that the history of the country’s IT sector has really been written in Bengaluru and the way forward should be no different. The establishment of major e-commerce companies in the city is a validation of this. India’s e-commerce segment is ` 79,236 crore ($ 12 billion approximately) in size and is witnessing strong growth. Simply put, if it is a business driven by technology, it has to be in Bengaluru. Of course, the Karnataka Government is making a serious attempt to distribute the fruits of this growth to other parts of the state by incentivising industry to move to smaller towns. Earlier efforts to shift some of the IT and ITeS-related activity to Mangaluru, Mysuru and Hubballi had faltered on inadequate infrastructure. On record, there are 2,160 IT companies which operate out of 47 IT-ITeS Special Economic Zones (SEZs) in the state, most of which are in Bengaluru. The new government policy – Karnataka I4 Policy (IT, ITeS, Innovation, Incentives Policy) – unveiled in 2013 places thrust on improving infrastructure facilities in smaller cities like Mysuru, Hubballi, Manipal and Mangaluru. The policy has linked employment generation in centres other than Bengaluru, with land allotment at concessional rates, in a bid to ensure the creation and absorption of local talent. In fact, availability of talent was what really brought IT and ITeS companies to Bengaluru. Strong legacy When American multinational Texas Instruments decided to set up shop in the same building complex as the public-sector Videsh Sanchar Nigam Limited (VSNL which was later bought over by a private company), many a common man wondered what the huge dishes atop the building were. History has it that the city was the first in the country to have a satellite earth station which enabled high-speed communication services, but that was not the only reason why Texas Instruments chose Bengaluru. The multinational company had, obviously, done its homework well to find that the largest pool of engineers in India was available only in this southern city because of the large number of engineering colleges in the state. Just a few years prior to Texas Instruments’ arrival, the Karnataka Government had granted permission to a record number of engineering colleges. Never before had 28 engineering colleges been accorded sanction in just one 117


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Information Technology

Thus were born companies like Infosys and Wipro and many others. All these companies grew phenomenally, soon after 1991, to chart a course which made many more multinational companies adopt different strategies to challenge the might of the Indian companies working out of India’s IT capital.

Source: Visvesvaraya Trade Promotion Centre cabinet meeting. The single-point plan was to produce as many engineers and as fast as possible because the country needed them. An overwhelming majority of these educational institutions belonged to private players. Of course, that was not unusual in a state which had had a history of permitting the private sector to provide higher education. In fact, Karnataka is one of the pioneering states in the matter. The seeds for that approach were sown, incidentally, by a monarch who ruled the state between 1894 and 1940. Krishnaraja Wodeyar IV, better known as Nalwadi Krishnaraja Wodeyar, was the Maharaja of the erstwhile Mysuru state (before the reorganisation of states in 1956 created the expanded state of Karnataka). It was this Maharaja who readily agreed to grant 350 acres of land to JN Tata to start an institution for science and research. That institution, called the Indian Institute of Science (IISc), today is one of the top 100 universities in the world. It was the presence of this institution as well as other institutes which made India’s first Prime Minister Jawaharlal Nehru promote public-sector units like the Hindustan Aeronautics Limited, Bharath Electronics Limited, and Indian Telephone Industries (ITI), among others in the city. The existence of scientific institutions, including the Indian Space Research Organisation (ISRO), along with public-sector undertakings, is what enabled formation of the ecosystem that catapulted Bengaluru to the top in science and technology. Once Texas Instruments recognised that potential, it was a matter of time before Indians themselves entered the sector to set up companies in the era before the economic liberalisation of 1991. 118

World’s back office From coding to body shopping to programmers being sent onsite to meet the demands of clients abroad, Indian companies went on to capture the outsourced services market. Their strength was that they had the technical manpower to meet the demands of a world which lacked the required skills and was clearly thirsting for such services. Over a period of time, the software companies also moved up the value chain. From providing low-cost programming on foreign soil, they started software development services. The quality of services provided by the flagships of Indian IT like Infosys and Wipro, apart from Tata Consultancy Services (TCS), helped create the Indian brand associated with reliability and quality, the norms for which were, literally, set in Bengaluru. The biggest advantage for the Indian companies was, however, the price at which services were delivered. The same price arbitrage helped the industry compete in business process management (BPM) – to the point of being called the back office of the world – before graduating into software products, engineering services and hardware. It also gave the industry immunity from global slowdowns and economic downturns. During the global market meltdown of 2000, Bengaluru-based companies set the trend of multi-skilling employees to meet the new demands of the world. They found ways to keep business growing. As the industry tried to reduce its dependence on price arbitrage and moved to focusing on quality offerings in terms of engineering services and product development, the multinationals again utilised the huge and experienced talent pool available in the large Bengaluru-based companies to set up research and development centres (R&D). The cream of global enterprises like GE, Intel, AMD, SAP, CISCO, Microsoft, Motorola, Nokia, etc., set up large units to cater to global requirements as the government stepped in with world-class infrastructure for the growth of the industry.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Job generation For generating export revenues of `7.8 lakh crore ($118 billion approximately), about 3 million direct and 9 million indirect jobs have been created in the country. One-third of this is estimated to be in Karnataka. According to a NASSCOM-McKinsey report titled Perspective 2025: Shaping the Digital Revolution, the number of jobs that would be created as the sector touches the targeted export revenue of `23.11 lakh crore ($350 billion approximately) by 2025 is likely to be around 5 to 6 million. With increasing automation, additional revenues of `6.6 thousand crore ($1 billion approximately) would possibly generate 18,000 to 20,000 jobs, unlike in the past when 25,000 people were required to meet the same target. However, even this talent may be hard to find unless the industry makes another serious attempt at re-skilling and re-tooling people and the government chips in to enable the same through focused skill-development initiatives. Already, there is tremendous competition to retain talent and to find new talent. The competition is largely between the major players and the industry newbies (read startups), which are sucking in talent in huge numbers. Startups, where the approach to work is very different from the systems prevailing in the larger or mediumsized companies, are the favourites of fresh graduates as much as mid-level professionals. But none in the industry has any doubts that the market opportunities for growth in the next 5 to 10 years are tremendous. The industry may grow at double digits, or even less, but slowdowns are surely a thing of the past. As the base has crossed `6.6 lakh crore ($100 billion approximately), a 10-12 percent growth translates into a huge actual number. The confidence stems from the fact that the sector in Karnataka has reached a critical mass. The only problems that need to be tackled on a war footing relate to infrastructure and talent. The industry has benefited, indeed, enormously from proactive governance and civic administration, especially in the early 2000s. I4 Policy The new IT policy in Karnataka, I4 Policy (IT, ITeS, Innovation Incentives Policy), focuses on three objectives: • Get IT companies to shift to other parts of the state. • Improve infrastructure facilities in smaller towns. • C  reate a talent pool through relevant skill-development programmes.

Information Technology

The policy lays special emphasis on ESDM (Electronic System Design & Manufacturing). In early 2014, the government had announced India’s first brownfield ESDM cluster-development project in Bengaluru. The state has an in-principle approval for the project which is to be set up at a cost of `85.15 crore ($12.5 million approximately) on 1.16 acres in Electronic City. E-LILA: The highlight of the policy is the Employment-Linked Incentivisation of Land Allotment (E-LILA) scheme applicable outside the limits of Bengaluru Urban and Rural districts. Under this scheme, allotment of land at concessional rates has been linked to employment generation. Some of the incentives are given below: • L and will be allotted at concessional rates to IT, ITeS, animation and other knowledge-based industries. • Incentives will be available only to direct end-users. • O  ne acre of land will be allotted for every 1,000 jobs created. • S  tartups will be given plug-and-play space with internet at concessional rates of ` 5-15 per sq ft, depending on the location. Highlights of I4 Policy • Thrust on promoting Tier-2 and Tier-3 cities • The department of IT, BT and S&T to act as SingleWindow Agency for clearance of knowledge-based industries • IT, ITeS, startups to be given exemption from the Karnataka Industrial Employment (Standing Orders) Rules, 1964, for 5 years • IT, ITeS startups, animation, knowledge-process outsourcing companies to be treated at par with public utilities • For all new employment created in Tier-2 and Tier-3 cities, Provident Fund and ESI contributions to be reimbursed at the rate of `2,000 ($30 approximately) per employee per month for 2 years • Industrial power tariff to be applicable to all knowledgebased industries • Stamp Duty exemption of 75 percent in Mysuru and Mangaluru for IT, ITeS, startups and other knowledgebased industries. Similar concession would be applicable in some other locations as well. • Skill development programme for training unemployed youth in basic IT, ITeS, ESDM, telecom, etc 119


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Information Technology

According to a Nasscom projection, IT exports will grow about 14 percent to reach `746 thousand crore ($ 112 billion approximately) and the domestic market by about 17 percent to touch `379 thousand crore ($57 billion approximately) by 2016. Photo: Happiest Minds ICT Skills Development Society In March 2014, the Karnataka government set up the ICT Skills Development Society (ICTSDS), mandated to facilitate skill development of unemployed youth in consultation with industry. The domains identified are ICT (Information and Communication Technologies), telecom, ESDM, manufacturing, services, health, and a few others. ICTSDS launched its programme in October 2014 in Bengaluru with special emphasis on ESDM. According to current estimates, the demand for electronics hardware in the country is projected to touch ` 26.4 lakh crore ($400 billion approximately) by 2020 as against an estimated production of ` 6.8 lakh crore ($104 billion approximately). Sensing an opportunity, the Government of India has introduced several initiatives for the development of the electronics sector under the National Policy on Electronics (NPE). Among its objectives is to create an enabling environment through 200 electronics manufacturing clusters (EMC) and creating adequate qualified human resources for the sector. Karnataka has been selected as one among 6 states in the country to implement a national scheme under which 15,000 120

youth are to be trained in ESDM skills at an estimated cost of `15 crore ($2.25 million approximately) a year. This will be done in association with the National Institute of Electronics and Information Technology, the Electronics Sector Skill Council of India, and the Telecom Sector Skill Council. Skill development programmes are to be held in smaller cities, especially in the ESDM domain. Also, one of the new Indian Institute of Information Technology (IIIT) announced by the Central Government is being set up in Karnataka at an estimated cost of `128 crore ($19.3 million approximately). The institute is being developed as a partnership between the Government of India and the state government in the ratio of 50:35, with the rest being raised from industry. The State Government has allocated 61 acres of land for the purpose in Dharwad.


RESURGENT KARNATAKA

INSIGHTS

‘Jobs equals Information Technology (IT)’ has become firmly entrenched in the psyche of the people. Finding fertile ground in the liberalised Indian economy of the early 1990s, the IT and ITES sector spiraled to dizzying heights compared to the slow chugging of its manufacturing counterpart. While there is pressure on the IT companies to spread their operations away from Bengaluru, and the government offers SEZ incentives to expand in other centres of the state, industry experts emphasise the need for better connectivity and infrastructure.

Information Technology

for job creation for first 10 years. • T  here can be grant for R&D done by startups and midsized companies for the first 10 years. Procedural issues can be largely simplified. Far too many returns are needed to be submitted for schemes with no benefits, including the STPI scheme. To encourage entrepreneurship further, we must have many more startup incubators – about 6 more of these in different cities in the state, located in the premier Technology Institutes and IIM-Bangalore. Bengaluru still remains the country’s top startup and IT hub for the country. Unlike in other major states, the entire dependence is on this one city. Steps need to be taken to develop additional centres in the state. To attract MNCs, there must be harmony. Divisive forces, moral brigade and intolerance should not to be allowed to spoil the environment.

Ashok Soota is Executive Chairman of Happiest Minds, a nextgeneration IT services company. He was president of Confederation of Indian Industry (CII), India’s largest industry association, and president of Manufacturers Association of Information Technology. He calls for simplified procedures and support to existing facilities in Tier-2 cities. What are your suggestions to realise the full potential of IT in the state? The Central Government’s SEZ scheme is the only real financial benefit left for the software industry. The SEZ scheme favours large companies since it prescribes a minimum size-to-qualify for SEZ, and, therefore, small-sized/mid-sized companies have to locate themselves inside third-party SEZ premises, and the high rentals negate any gains.

Is there a need to expand the number of software technology parks to Tier-2 and Tier-3 cities, besides Mysuru, Mangaluru and Hubballi? Software Technology Parks in Mysuru, Mangaluru and Hubballi are sufficient and it is better to develop these than increase the numbers with poor quality. Mysuru, in particular, should be connected directly by air to all major cities in the country. Limited connectivity to Bengaluru alone is irrelevant. Mangaluru and/ or Hubballi should be developed into significant international airports, as this will aid development of these cities. In about 10 years, Bengaluru will need a second international airport. This must be located between Mysuru and Bengaluru to service the requirement of both cities. Planning on this must start now. This will accelerate the growth of Mysuru and reduce the pressure on Bengaluru.

There is a need for some special benefits for small-sized and mid-sized companies and startups in particular: • There can be a government grant on a per person basis 121


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Information Technology

So you have a lot of competition, and I am not naming everybody who is competing. I think many other states have woken up and feel that IT is a very important value generator, a very important ecosystem in terms of creating high-value jobs and so they are starting to provide similar incentives, make it easier, make infrastructure better.

Ravi Gururaj is a serial entrepreneur, Chairman & Co-Founder, Frictionless Ventures Pvt. Ltd., and Chair- Executive Council, & Chair-Product Council of NASSCOM. He says one has to have realistic expectations about growth in Tier-2 and Tier-3 cities. Do you think the state government’s policy is adequate in realising the full potential of IT in the state? The I4 Policy is relatively new. It will take at least a few years to see the impact; nothing happens overnight. I am a patient person in that sense. I think that generally people are impatient to see the result right away of any policy that any government puts in place. You have to keep on refining the policy, you have to learn from what works and what does not, and keep on making adjustments till the end. It is very important that both the administration and the politicians realise that you have to keep on monitoring the success of any policy put in place and keep on adjusting to improve outcomes. How can the state government ensure that Karnataka remains a preferred destination for IT business in India? Other states are competing more vigorously for sure. When Andhra Pradesh split up into Telangana and Andhra, there came to be two states that are competing. Chennai (Tamil Nadu) is also competing, Maharashtra is competing, Kerala is competing.

122

We should aspire to have better infrastructure in Karnataka, and a move to decentralise jobs away from Bengaluru would hopefully help. As the jobs move out of the city, some of the pressures on the city will come down. Right now, the pressure on the city is too much, the infrastructure is very poor, and power supply is a constant problem. We need to focus on the core fundamentals as well make sure that we could provide the adequate levels to attract and reach out to best companies in the world. In the end, I think the government will respond and keep up with the others because we have a credible market here. We have more to lose if our policies are not competitive, compared to anybody else because we actually have so many companies here already. We do not want them to pack up and leave because the policy is better somewhere else. Do you think that outsourcing and export of IT still remain the state’s predominant IT services? What conditions are necessary for Karnataka to be the centre of the IT boom yet again in the near future? You have engineering services, you have GIC’s (Global In-house Centres) of various companies that are set up here – so it is not just outsourcing anymore. There is a lot going on. To stay competitive, you have to provide great infrastructure. I think Bengaluru and Karnataka have the benefit of great weather in most of the places. That is a big plus for Bengaluru. To retain people in the city, we need better power, infrastructure and connectivity, and maybe the cost of housing can be lowered a little bit as also the cost of transports, basically the overheads of operating from the city. The rest of the state is a reflection of the city in some sense. It is a kind of a mirror image of the city when it comes to these issues.


RESURGENT KARNATAKA

INSIGHTS

Information Technology

Geographical distribution of jobs to places with highest latency will happen when the government is supportive, gives quick clearances and puts the infrastructure in place. The government should implement e-governance to enable speedy permissions. Should there be more software technology parks? There are already a number of software technology parks lying vacant in these cities, so there is no need for more such parks. They have to get the infrastructure for which they have bought land from farmers. IT is not a manufacturing setup; the only raw material is the manpower and people have to find the state attractive.

Ramadas Kamath is the Executive Vice-President and Head of Infrastructure, Facilities, Administration, Security, and Sustainability of bluechip IT company Infosys. He says that the investment on software parks in Tier-2 and Tier-3 cities should be given infrastructural support. What measures do you suggest to realise the full potential of IT in the state? The total value of Karnataka’s exports in 2014 from IT/ITES, hardware and software was ` 2,15,000 crore ($ 32.1 billion approximately). The contribution of Tier-2 cities to this was: Mysuru exported software worth `3,000 crore ($ 448 million approximately); Mangaluru’s exports were worth `2,500 crore ($ 373.7 million approximately). In both the cities, Infosys contributed 80 percent, and other companies contributed 20 percent. Bengaluru is exporting 98 percent of the software exports, and Tier-2 cities export 2 percent. We need a single window that will give permissions and policy incentives, improved infrastructure in Tier-2 and Tier-3 cities, and better connectivity to these cities – good roads, shorter trains and cheaper flights.

Could you give some ideas on how Karnataka can explore more dimensions of entrepreneurship in IT? The government has to be proactive and engage in dialogue with industry. Industry is doing things on its own, and entrepreneurship is happening because of the good climate, good ecosystem, cosmopolitan culture, and availability of manpower. Today, IT companies are not interested in tax benefits, which are anyway given by the Government of India, not the state government. In all, 60 percent of Karnataka‘s GDP comes from Bengaluru itself and the tax buoyancy is 20 percent. The main spending and tax payments are by those employed in IT companies. The IT segment is the biggest contributor to land registrations, as IT employees are buying homes. What must be the Karnataka Government’s focus areas to make sure that the state remains a preferred destination for IT business in India? The Karnataka Government should be industry-friendly, with a genuine single-window policy. There has to e-governance; there have to be powerful departments in all the Tier-2 and Tier-3 cities. The ministry has to set goals which they have to achieve, and work hard to achieve them. People do not want freebies but solutions to problems that are beyond their control.

123


HEADQUARTERED IN BANGALORE,

FIRST HYBRID IT INFRASTRUCTURE SERVICES PROVIDER WE ARE INDIA’S

AND A TRUSTED PARTNER TO ENTERPRISES IN THEIR IT-AS-A-SERVICE JOURNEY.

1B, Ecospace, Bellandur Outer Ring Road, Bangalore 560 103, Karnataka, India www.microland.com


INDUSTRY OVERVIEW

MANUFACTURINGManufacturing

RESURGENT KARNATAKA

The Karnataka Industrial Policy (2014-19) aims to create 15 lakh employment opportunities in the manufacturing sector. Companies like Bosch have established vocational centres that provide hands-on training to students & make them industry ready. Photo: Robert Bosch GmbH

Shifting gears Karnataka has been a benchmark for manufacturing and industrial activity. While the public sector thrived here in the post-Independence era, small and medium industrial units contributed significantly to the GSDP in the subsequent years. The global slowdown of 2007-2008 hit hard India’s overall industrial output, and Karnataka has ambitious plans in play for the sector to grow at 12 percent CAGR over the next decade and regain its ranking of the 1980s and 1990s. The Karnataka Manufacturing Taskforce (MTF) has recommended steps to boost manufacturing in the State and make Karnataka a preferred destination for Indian and international investors. It believes that Karnataka has all the necessary fundamentals in place-economic, political, resources and skills that are needed to convert it into a manufacturing powerhouse within a decade.

126

MTF’s suggestions In November 2013, the MTF submitted its report. Its recommendations had 3 basic objectives: • R  aise the share of the manufacturing sector in the GSDP to 25 percent by 2025 from 17.9 percent recorded in 2012 • C  reate 1.5 crore incremental employment within the stipulated period • Ensure balanced and inclusive growth across Karnataka Essentially, achieving this would require a compounded annual growth rate (CAGR) of 12 percent for every year till 2025, as against a CAGR of 7.8 percent noted between 2005 and 2012. The MTF had also forecast that the manufacturing sector would invest about `12,50,000 crore ($ 189 billion approximately) and generate output worth `3,75,000 crore ($ 56 billion


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

approximately) by 2025. This would conservatively add around `2,50,000 crore ($ 38 billion approximately) to the state exchequer through taxes till 2025, besides providing for a host of other secondary benefits. Most of the above recommendations were accepted in the Karnataka Industrial Policy 2014-19 (KIP 2014 – 2019). KIP (2014-19) The 5-year Industrial Policy for the state has the following objectives: • To maintain an industrial growth rate of 12 percent a year • T  o enhance the contribution of the manufacturing sector to the GSDP from the present level of 16.87 percent to 20 percent by the end of the policy period • T  o attract investment of `5 lakh crore ($ 75.6 billion approximately) • To create 15 lakh employment opportunities • T  o create an environment to enhance ease of doing business in the state To pave the way for such optimistic, forward-looking projections, a number of reforms concerning large-scale, medium-scale, and small-scale enterprises across various industrial sectors have been announced. National Investment and Manufacturing Zones (NIMZs) will be developed, which are likely to fulfil the critical need of moving manufacturing bases away from Bengaluru, incentivising industry to set up new units, encouraging small– scale and medium-scale enterprises (SMEs), and granting financial concessions to very large projects. The policy has been formulated to boost industrial growth rates and revenues as well as make the cost of living for labour affordable, thereby improving the standards of living in the state in the long run. Within this period of 5 years, (2014-2019), the policy has sought to bring about sweeping changes across different sectors in the manufacturing sector. Besides aligning with the recommendations of the Karnataka Manufacturing Taskforce 2025, the policy has also been aligned with the objectives and goals of the National Manufacturing Policy (NMP) that was announced by the Government of India in 2011. The explicit objective of NMP 2011 was accelerated development, inclusive

Manufacturing

growth and provision of gainful employment. NMP 2011 aims at increasing the share of manufacturing in the GDP to 25 percent by 2025 and creating 100 million jobs. Development of NIMZs To begin with, Tumakuru, Bidar, Kolar and Kalaburagi districts have been chosen as locations for NIMZs. This involves setting up integrated industrial townships with state-of-the art infrastructure, skills development facilities and land-use plans based on zoning. The NIMZs are to be developed through Special-Purpose Vehicles (SPVs) according to the guidelines of the NMP. The State Government would support these SPVs through equity participation, but the economic support input had a ceiling of `500 crore ($ 76 million approximately) per NIMZ. Small and large manufacturers would operate together in NIMZs. This set-up would allow for easy collaboration between businesses within a strong value chain, help reduce costs and lead time, achieve economies of scale and encourage technology transfer. To decongest Bengaluru and promote other areas through industrial development, potential areas are to be selected as Special Investment Regions (SIRs). Mysuru, Mangaluru, Hassan, Bagalkote, Vijayapura, Raichur, Koppal and Ballari are to be developed as industrial nodes. Industry observers believe that creating townships alongside these centres is likely to help in checking the unbridled rise in land prices. Incentivising new enterprises One of the remedial measures suggested by most industry and trade bodies has been to make the business environment in the state more entrepreneur-friendly. Taking a cue from this, the new policy has sought to incentivise new industrial units. The state has decided to cut the industry application fees by 50 percent and sought to make the Single-Window Clearance Mechanism more effective to improve ease of doing business. A comprehensive study for simplification of regulatory procedures would be done by the government to reduce time and cost of compliance with bureaucratic procedures for industrial investments. All regulatory and statutory approvals 127


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Manufacturing

reimbursement of actual costs. Technology development centres are to be set up in each of the 4 NIMZs. They would help in passing on technical knowhow to the micro and small industries.

Source: Karnataka Economic Survey, 2014-2015 required for project clearances are to be covered in the study. Encouraging SMEs Small and medium enterprises (SMEs) have a huge impact on the socio-economic development. SMEs contribute 8 percent to the country’s GDP, 45 percent to the manufacturing sector, and 40 percent to exports. They provide employment to over 80 million youth. As an acknowledgement of this critical segment of industrial activity, KIP has set aside a minimum of 20 percent of allocable land to develop SMEs.The state is reported to have a land bank of 40,000 acres. It has proposed to develop Rural Industrial Areas exclusively for SMEs in industrial corridors. Infrastructure facilities like road connectivity, drainage system, street lighting and water supply systems are also to be developed. To make it easier for SMEs to kick-start operations, KIP has proposed to create a venture capital fund to support start-up enterprises, especially in the micro and small sectors. It has proposed to set up angel funding schemes to encourage firstgeneration entrepreneurs to set up micro and small industries in the state based on innovative ideas. The government has decided to incentivise commercial and rural banks to provide easy loans to small industries under their cluster-based approach. Quality-improvement interventions by SMEs like upgrading existing technologies and installing new technologies for quality control, cleaner and environment friendly production, quality testing and fee paid for quality certifications are eligible for one-time subsidy through 128

The state will offer aid to SMEs to participate in international trade fairs/exhibitions and give support to market themselves on international platforms. Government departments have been mandated to make purchases from micro and small enterprises within Karnataka at a price preference of 15 percent against the products of large and medium players. Finally, to make operations easy and hassle-free, the state has chosen to evolve a mechanism to reduce inspections of SMEs by various departments and push for self-certification. Alongside, the procedure for submission of returns under various labour laws is expected to be more streamlined owing to better co-ordination between the Labour Department and SMEs. Financial concessions for large players Provisions have been made for certain financial incentives and concessions for large, mega, ultra-mega and super-mega enterprises. Some noteworthy ones are given below: • E  xemption from stamp duty and concessional registration charges. • R  eimbursement of land-conversion fee and exemption from Entry Tax. • Interest-free loan to large, mega, ultra-mega and supermega enterprises on net VAT and CST. Karnataka has, in the past, spearheaded the growth of industries, particularly in the areas of electrical and electronics, information & communication technology (ICT), biotechnology, and, more recently, nanotechnology. It has also been home to a robust aerospace industry with a significant number of ancillary units feeding into the large sector. This has been made possible by the industrial structure of the state that allows coexistence of modern high-tech capital goods and knowledge-intensive industries with traditional consumer goods industries – both characterised by the presence of major multi-billion-dollar MNCs and large Indian conglomerates, both private and public. To leverage this further,


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Manufacturing

The garment-manufacturing sector employs close to 10 lakh people, almost 90 percent of whom are women. Karnataka accounts for over Photo: Indian Designs Exports Pvt. Ltd 20 percent of the national garments production. the state has introduced certain sectoral changes to overhaul the manufacturing scenario. Some of the important sectoral highlights are listed here: Defence and aerospace: Historically, Karnataka has been favoured by many players from the aerospace domain. With the current conducive ecosystem, the state is emerging as the favoured destination for global aerospace behemoths, apart from public-sector organisations which have traditionally considered the state their base. There are Hindustan Aeronautics, National Aeronautics, Airbus, Boeing, ISRO, HCL, Honeywell, and UTC Aerospace Systems (formerly Goodrich Corporation), to name a few. The sector is seeing some concerted action to build capacity. Expansion plans are under way to make the Hubballi airport an international one. The Mysuru airport is being expanded, while new facilities are being created in Kalaburagi, Shivamogga, Bijapur, Ballari and Hassan. A total of 984 acres of land has been earmarked for an exclusive industrial area and sectorspecific Special Economic Zone (SEZ) for aerospace industries near the Kempegowda International Airport, Bengaluru.

Hindustan Aeronautics has proposed to spend `400 crore ($ 64 million approximately) to develop a Light Utility Helicopter at a manufacturing facility at Tumakuru. At the eighth Annual Manufacturing Conference conducted by the Confederation of Indian Industries (CII), most experts felt that the defence and aerospace sectors would lead innovation in manufacturing over the next 5 years. The use of newer materials and technologies would, in turn, create the need for newer machining and fabrication processes, thus giving a fillip to the manufacturing sector. Another big thrust would come from the Government of India’s Make in India campaign which is looking to the defence and aerospace sectors to kick-start this initiative. India is currently the eighth largest importer of defence equipment in the world, and the objective is to reduce its dependence on defence imports. Automobiles: Karnataka is the second major hub and the fourth largest state in India for automobile and ancillary production, with investments of around `4,698 crore ($ 713 million approximately) and annual revenues of `3,979 crore ($ 604 million approximately). The state is home to some of the biggest names globally like Tata 129


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Manufacturing

Bengaluru has produced the world’s best selling electric car, Mahindra e2o. Motors, Toyota, TVS Motors, Honda, Scania India, L&T Komatsu, Tata Hitachi, Tata Marcopolo and Volvo. Strategies are under way to incentivise and institutionalise the R&D environment for the auto sector in the state and foster and support linkages between industry and academia for research. Plans have been made to reduce road tax and registration tax for green or hybrid vehicles – done with an eye on reduction of air pollution in future. In fact, the state has been in the forefront of offering subsidies to end-consumers on purchases of Mahindra’s eco-friendly cars. The state is undertaking a feasibility study to set up major auto parks at Dharwad, Kolar and Bidadi. Smaller auto parks in Belagavi, Shivamogga, Mysuru and Kalaburagi are in the pipeline. TVS Motors has three manufacturing plants across India, including one in Mysuru. Volvo India has a state-of-the-art bus manufacturing unit in Hosakote, near Bengaluru, which has a capacity to churn out 1,500 buses a year, and it employs 2,000 people. The company plans to invest around `975 crore ($ 145.5 million approximately) to expand the plant and generate additional employment for 2,125 people.

130

Photo: Mahindra Reva

Delphi India, a global supplier of electronics and technology for automotive and commercial vehicles, has a technical centre in Bengaluru, its largest outside the US. Narsapur and Vemgal industrial areas in Kolar are two upcoming automobile hubs in Karnataka. Honda Motorcycle and Scooter India has a production unit in Narsapur, in Kolar district with a capacity of 1.8 million units. It plans to invest `580 crore ($ 86.7 million approximately) to increase the capacity to 2.4 million units. Auto major Triumph has developed a two-wheeler plant in Narsapur. Textiles and garments: Karnataka is one of the country’s largest sourcing points for readymade garments. The state accounts for 20 percent of the national garment production. There are 3.8 lakh garment-manufacturing units in the organised and unorganised sectors, employing close to 10 lakh people, almost 90 percent of whom are women. Apart for manufacturing for the domestic market, these units service orders from large global brands. Additionally, there are handloom and powerloom textile production units which employ close to 4 lakh workers, and another 2.5 lakh weavers who operate small looms out of their homes. Recognising the potential of this sector as a


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

producer of value-added goods for the international market as well as a generator of large-scale employment, the Government of Karnataka announced a new textile policy in October 2013. The Nuthana Javali Neethi 2013-2018 envisaged an investment of `10,000 crore ($1.4 billion approximately) to generate an additional 5 lakh jobs. The planned investment is to be spread throughout the textile value chain, including handloom, powerloom, spinning, processing, garments and technical textiles. The objectives of the new policy are: • T  o achieve sustainable growth with emphasis on balanced regional development • T  o facilitate emerging technical textiles in critical areas such as production, technology and R&D • T  o support industry with skilled human resource and to create at least 5 lakh new jobs As on date, the state has 105 skill development centres and 240 private training centres supported by the Department of Handlooms. Under the new policy initiatives, the state will support programmes for skilling unemployed youth and upgrading skills for people employed in the textile sector. It is estimated that over 1 lakh people have so far been trained under the new initiatives. The State Government is also looking to map the growth of the textile industry in a way that would address the challenge of regional imbalances. Essentially, textile and garment units are concentrated in and around Bengaluru and Ballari. In the last couple of years, mega projects and cluster-based parks have been developed in interior areas like Shivamogga, Mandya, Bijapur, Hassan, Kalaburagi, Dodballapur and Ballari. A Special Economic Zone (SEZ) for textiles has become operational in Hassan. In February 2015, the government announced plans for a new textile park at Yadgir in north Karnataka. The new textile policy offers credit-linked capital subsidy, entry tax reimbursement and power subsidy. Electronics and electronic hardware: Karnataka has a prospering electronics and electronic hardware industry. As of 2014-15, 80 out of 120 chip design companies in India are located in the state. According to the ESDM (Electronic System Design & Manufacturing) Policy, 3 ESDM innovation centres and 7 high-class ESDM Manufacturing Clusters (EMCs) are expected to be developed by 2020.

Manufacturing

According to the policy document, by 2020, the ESDM sector is expected to generate a turnover of `26 lakh crore ($ 400 billion approximately), including exports of around `5 lakh crore ($ 80 billion approximately), with an investment of `6.6 lakh crore ($ 100 billion approximately). The key players in the segment are Intel India Development Centre, which has a critical engineering design and development centre for key Intel products; AMD India, which has a design cent relocated in Bengaluru for Accelerated Processing Units (APU), SoCs, graphics and media solutions; Nvidia, which has a design centre in Bengaluru since 2005 that manufactures Graphics Processing Units (GPUs) and Systemon-a-Chip units (SOCs) for the mobile computing market. These apart, Karnataka hosts global electronic giants like Sanyo, AT&T, Siemens, GE, Motorola, Sony, and Alcatel as well as national heavyweights such as Indian Telephone Industries and Bharat Electronics. Engineering products: In the engineering space, the key public-sector players in the state include Bharat Earth Movers, which has units in Kolar Gold Fields, Mysuru and Bengaluru; and Bharat Heavy Electricals, which has an electronics division in Bengaluru. Hindustan Machine Tools (HMT) has a manufacturing plant in Bengaluru for making various machine tools, including watches, tractors, printing machinery, metal forming presses, die casting & plastic processing machinery, CNC systems and bearings. Steel, cement and machine tools: Karnataka produces a majority of India’s machine tools, with Bengaluru manufacturing almost 60 percent of the total quantum of machine tools which is estimated around `2,160 crore ($ 327 million approximately). A plan to promote an exclusive machine tool park in the state, either through the Karnataka Industrial Area Development Board (KIADB) or on a PPP model, is on the anvil. The state has abundant mineral wealth, especially in terms of major minerals like iron ore. It has substantial quantities of minor minerals like limestone, silica and manganese that are available for commercial exploitation. Keeping in view the guidelines issued by the Supreme Court and the MMRD Act, the state has now decided to allot mining leases for captive consumption.

131


RESURGENT KARNATAKA

INSIGHTS

The manufacturing sector has been clamouring for more attention for a while now, and the Karnataka Industrial Policy 2014-19 addresses many concerns including development that was skewed in favour of some regions. Timely approval of projects and simplification of rules are vital for the sector to regain its advantage, say industry experts.

Manufacturing

Regulations relating to pollution control must be administered in a fair manner and should not be used as a tool of harassment by self styled NGOs to stop industry from working. Here again, the speed of administering redressal needs to be reinforced. How could the state solve the problem of shortage of skilled staff in the manufacturing sector? This is more a crisis of planning for talent development at a micro level. While there are a number of institutes that are available to impart training for the manufacturing sector, often the requirements of industry and skill sets are mismatched. This necessitates retraining of personnel to suit the requirements of industry. Given this situation the government must encourage industry and training institutes to engage more meaningfully. Toyota runs a program with some industrial training institutes that imparts specific skills to students in a 6 month programme. Such programs effectively teach a student how to assemble and repair an engine or a gear box or how to engage in repair of body dents to automobiles. This training equips them to join automobile dealerships as trained technicians.

Shekar Viswanathan is the Vice Chairman & whole-time Director of Toyota Kirloskar Motors Pvt. Ltd and the Chairman of CII Karnataka State Council 2015-16. He says that the state government should keep manufacturing companies that have already set up shop in the state happy, as they would be the best ambassadors for promoting industrial development in the state. Apart from developing integrated NIMZs what other measures would attract investment in manufacturing in Karnataka? Speed of approval is key to attracting investment into the state – this needs to be addressed at the earliest. A long term approach to attracting investment would include keeping industry that has already set up shop in Karnataka satisfied with its requirements of power, water and good roads. Industrial estates in all the districts of Karnataka should have access to quality power, good roads and sufficient water. Equally important would be to ensure that any one squatting on land without building a functioning industrial unit is dispossessed of their land which in turn should be allotted to those with credible plans for manufacturing, including confirmed bank finance. 132

Would PPP solve infrastructure problems? PPP is one way to solve these problems – but the role of the government still needs to be reckoned with, and the state government must commit to timely approval for all projects and that there would be no impediments to their speedy execution. People will need to demand better services from the various arms of the government and the private sector. There needs to be a sense of urgency and pride in nation building instead of dissipating our collective energy on quotas, out of turn allotments, reservations and the like.


RESURGENT KARNATAKA

INSIGHTS

Manufacturing

Agency, instead of forcing prospective industries to approach multiple departments. • Simplify statutory compliance to make the process easier • R  eform State labour laws. For e.g. the garment export industry, is seasonal in nature.  However, the present rules governing ‘overtime’ do not take this into consideration.

Naseer Humayun is the Chairman and Managing Director of Indian Designs Group. He calls for simplified statutory compliances and reform of labour laws. What does the industry expect to be provided in the NIMZs? To be effective, these zones should have the following: • It should be ensured that these zones could be reached by road from an airport within 3 hours. This is especially important if these are not located in a metropolitan area. Without this connectivity, administrative costs go up and execution cycles are strained.  • Round the clock good quality power • Industrial training institutes to ensure trained manpower is available • G  ood local engineering and management institutes for sourcing interns • R  egulatory bodies should have offices in the zones that are empowered to give clearances, so that industrial units do not have to approach the state capital. What has worked well till now for manufacturing in Karnataka? What other measures should the government take? A reasonably educated and disciplined workforce, and an industrial culture have worked well for manufacturing so far in Karnataka. The government can do the following to encourage industry:

Soumitra Bhattacharya is the Joint Managing Director and Chief Financial Officer of Bosch India Ltd. He says that the government should take actions to strengthen resource distribution system. Do manufacturing expect more incentives and sops? More than incentives and sops for the new projects, existing companies need ease of doing business, like time bound approvals or deemed approvals. What other measures would attract investment in manufacturing? Single window concept for project clearance from all the government and statutory authorities should to be implemented. Lands should be allotted to the companies without any encumbrance. Currently there are multiple taxes that should be combined into a single tax. While some approval processes are online like E-Governance, Bhoomi and some at the Karnataka Udyog Mitra, all other approval process also has to be made online.

• Ensure clearances are obtained in the Single Window

133


RESURGENT KARNATAKA

INSIGHTS

Prakash Makhija is the Managing Director of Gokaldas Images, one of India’s largest integrated clothing corporations. He wants the government to streamline permissions and ensure smooth sailing for industry. What support would you welcome from the government? The government has to stay involved even after it develops the NIMZ, and should support industries against interference from local pressure groups that hamper industry from functioning. How could the Textile Parks set up by the Government encourage and support the garment manufacturers?  Textile parks need to be better located as putting them outside city limits makes it difficult to get employees. Industries are not able to use the land facility. Instead, the government could give subsidies to boost this industry. What other measures should the government take to encourage manufacturers?  It should make setting up industry easier and lighten the cumbersome process. The single window policy has to be a single window and not lead to many doors.

Manufacturing

Uma Reddy is the Chairperson, Enterprise Development – Technology & Innovation Committee, FKCCI. She is also a council member of the Prime Minister’s chaired Council for Micro, Small & Medium Enterprises, Government of India and Prime Minister’s National Innovation Council. Manufacturing can attract better talent if it adapts some measures that the IT sector follows, she says. What measures, apart from setting up NIMZs, would help SMEs? NIMZs are largely for the medium and the large scale enterprises, and it has to be clarified whether SMEs are a part of NIMZ and if there is a specific amount of land allocated for SMEs within the NIMZ. SMEs have to be made a part of the ecosystem because most of the land allotments are sector specific. We have the financial cities, hardware technology parks, the aerospace parks, we have the electronic city, and we need to have the large, medium and the small enterprises as part of the same ecosystem. Clusters that have common facility centres like testing calibration centres and incubation centres and links to institutions would be helpful to SMEs and start-ups. How could SMEs tackle the problem of shortage of skilled workforce? How could the state help? The workloads of a large number of SMEs keep shifting from peak to low. At times when the workload is low, they should be able to utilise their shop floors to train to unskilled labour. Enforcement of ESI and PF rules should be relaxed to allow this to happen. We need to increase opportunities and training for women in manufacturing. As members of eMERG (Engineering Manufacturer Entrepreneurs Resource Group) women

134


RESURGENT KARNATAKA

INSIGHTS

entrepreneurs make an effort to employ women. We need to focus on providing training skills or re-skilling women who are rejoining the workforce after a break.

Manufacturing

lights as they are focused on immediate requirements like raw materials rather than a long term investment like LED bulbs. Conflicts in policies have to be ironed out to enable industries to effectively use alternative energy.

What other measures would help manufacturing in Karnataka? While this state rides on the strength of having been a manufacturing focused state for many years, down the line, a lot of focus has gone to the services sector, because of the IT boom. A large number of people prefer a white-collar job, as people in manufacturing have to work in the heat in sheds compared to the air-conditioned offices of IT companies. We need to make manufacturing shop floors as professional looking as the IT shop floors. This means giving the industrial areas like Peenya and KSIDC industrial estates the same plush look as tech parks. China’s manufacturing industrial estates are huge, with immense infrastructure. We need our industrial estates to look like that. In which manufacturing sector should the state enhance its advantage through incentives and SOPs? Karnataka has been strong in Electronics, with the public sector Bharat Electronics and BHEL being set up here in Bengaluru. This lead to the growth of a huge network ancillary manufacturers and vendors. Somewhere along the line though, they have not got enough opportunities to grow their business. Gurgaon has come up as an Electronics space, and this sector needs a lot of support in our state to hold to the competitive advantage in manufacturing. There is an opportunity of about $ 100 billion in electronics in India which is estimated to grow to $ 400 billion by 2020. Despite this, all our electronics are being imported and our import bill for electronics is expected to beat our petroleum bill by 2020. Every part of life, whether it is automotive, medical, renewable energy, all sectors have electronics in it. A car has more electronics than mechanical parts. That being so, I think there is a large need for a boost to manufacturing in the electronics sector. Are manufacturing entities in Karnataka able to strike a balance between productivity and climate protection? I think a lot needs to be done in this case. Let us take the simple case of LED lighting, many SMEs have not adopted LED

Kamal Bali, Managing Director of Volvo India Private Limited, says that multinationals ‘Making in India’ can create greater value for India, from India, and for rest of the world. What has worked well till now for manufacturers in Karnataka? What other measures would help this sector? Karnataka is one of India’s most industrially progressive states and has an extremely supportive ecosystem. The capital city of Bengaluru has an x-factor and a special buzz. The state’s commercial tax system is highly automated and transparent. These factors have added a lot of attraction to the state and this has worked well for the industry in the state over the years. Progressive governments in the state have been conscious of the need of industrial development; they have been empathetic towards the concerns of industry and have been generally supportive. However, the pace at which the city of Bengaluru has grown was not adequately anticipated, and, as a consequence, for the last decade or so, we are seeing a situation where the physical infrastructure in the city has become a major concern. We believe that a number of steps are in the pipeline to decongest Bengaluru and create/encourage development of other industrial hubs such as Mysuru, Tumakuru and

135


RESURGENT KARNATAKA

INSIGHTS

Hubballi - Dharwad. World-class physical and digital infrastructure connectivity, creation of industrial corridors, and structural reforms related to land and labour laws will improve the ease of doing business which will further bolster the position of the state as the most preferred destination. What are the innovative and sustainable measures in manufacturing ? The government’s manufacturing policy very correctly includes sustainable and balanced industrial development that is tied into World Bank’s Investment Climate Index. The larger manufacturing companies in Karnataka, and those in rest of India, are always in the forefront of embracing innovative, sustainable and eco-friendly systems and processes. It is the medium and smaller companies that need to be more aligned

12

Manufacturing

to our legal requirements. Maybe the government can offer subsidies that can provide a fillip to these companies. At the Group level, Volvo has subscribed to WWF Energy Savings targets. At Hosakote, we plan to have solar power supply to reduce dependency on public utilities and fossil fuel. Since all 3 factories of ours are located in water-stressed region, water resources are judiciously used, recycled and harvested, including groundwater recharge. In the near future, we plan to have our manufacturing sites achieve Landfill-Free Certification. All our factories in Bengaluru are EMS14001-compliant and we meet all these requirements, including continuous improvement of targets. Each one of them has clear targets to bring down resource consumption, wastage and energy consumed year-onyear. Volvo has a blacklist of material that cannot be used in our factory or by our suppliers.




   

           

! "#" $# % &  ' #&( )


Real Estate

Mixed use real estate developments have gained currency in Bengaluru, with residences, hotels, shopping complexes and hospitals meshing into cohesive upmarket experiences as in the World Trade Centre and its neighbouring complexes. Photo: Brigade Group

Home is where the money is

Over the last decade or less, the real-estate sector in Karnataka, specifically in Bengaluru, has undergone a significant transformation. From being a market of end-users, today it is driven by investors. Land is the new asset class and buildings are investment. When compared to Mumbai and the National Capital Region (NCR), which have traditionally been speculator-driven and investor-driven, Bengaluru relatively remains an end-user’s market, but decreasingly so. Today, it is billed as the country’s numero uno real-estate investment city, pipping both Mumbai and Delhi to the post. Just consider this: Bengaluru needs 7 quarters to sell its inventory, while Mumbai takes 11.5 quarters and the NCR takes 13.8 quarters. According to VCCEdge, the research arm of VCCircle, the city attracted private equity (PE) investments of almost `13,000 crore ($ 2 billion approximately) over the past 5 years, the highest-ever in the sector. In terms of market size, Bengaluru saw transactions worth `36,000 crore ($ 5.4 billion

approximately) in 2014, the largest in any city in the country. With almost 500 new projects in 2014, Bengaluru accounted for 20 percent of the total launches in the country’s top 14 cities. There was a time in history when Bengaluru’s lazy pace, quiet bylanes and never-too-hot weather were reason enough for people to build homes here. Those days are gone along with the good old bungalows, making way for highrises. To some, the story of modern-day Bengaluru is one of an urban agglomeration bursting at its seams. Never mind the dirt and grime, chaos and pollution and the endless hours of driving on what once were roads, people still want to come down and live here. After all, home is where the money is. Add to this the rush of companies to find an address in one of India’s premier corporate cities. Karnataka is home to over 80 Fortune 500 companies and about 700 MNCs, most of them located in the capital city, and more individuals and corporations want to set up bases in the state. Despite the low ranking in the recent World Bank-KPMG report on Ease of Doing Business in 141


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Real Estate

India, the demand for commercial property remains unabated. The report has ranked Karnataka in the ninth position, which the State Government has questioned. World Bank had earlier rated Karnataka as having the most ‘Positive Business Environment’ and Bengaluru as the ‘Best Place to Live and Work’ in India.

properties owned and operated by them. Long leases, A-grade clients and Fortune 500 companies propelled professional money into this sector.

Bengaluru-centric growth The transition of the capital city from being just another Tier-I city to the most–sought-after metro is a rather recent occurrence. It spearheaded its way up the property charts in a short span of time and now tops the list in several propertymarket reports. According to a report titled Top 10 Cities in the Indian Real Estate Market, prepared by PropEquity, a real-estate data and analytics firm, the city has moved to the number one spot from being sixth in 2009.

• In January 2015, Bengaluru-based property developer Brigade Group purchased a prime property measuring 2.25 acres at Hebbal from Hindustan Coca-Cola Beverages for `68.83 crore ($ 10 million approximately).

One of the primary reasons for this sudden spurt, of course, is unquestionably the Bengaluru-centric growth that the state has seen. Several past efforts to decongest Karnataka’s capital and divert traffic to smaller towns and cities have proved futile. Be it information technology or business process outsourcing or engineering to aerospace, all the action is in the city. Increasing demand for a commodity like real estate, which is characterised by limited supply (in case of land) or long gestation periods (in case of buildings, houses and office spaces), has led to dramatic spiralling of costs. A report by realestate consultant LJ Hooker India says that the city’s residential realty market continued to expand steadily despite property prices seeing an appreciation of 9–17 percent in diverse segments all over the country. This expansion was driven by investments with an eye on future demand. Real estate as investment The city has been offering one of the best rates of appreciation for land and housing assets with a stable 13 percent average annual price appreciation in the residential sector for the last 4 years. A combination of steady traction, reasonable offtake and sustainable margins has made it a paradise for PE funds. Notably, the countrywide depression in the real-estate market following the global slowdown of 2007-2008 has apparently left Bengaluru unaffected. In the commercial segment, most developers have invested handsome amounts in creating an impressive portfolio of 142

Some of the recent, large property deals given below reflect the investment sentiment.

• In March 2015, the Brigade Group announced the acquisition of Brooke Bond Real Estate through Brigade Properties, its joint venture with GIC Singapore, to develop an IT Special Economic Zone (ITSEZ) spread over 3 million sq ft in Whitefield. The group saw a 38 percent growth in revenues and 29 percent growth in net profits for the year 2014-15. • M  umbai-based ASK Group has invested `250 crore ($ 37 million approximately) over the past 2 years in Bengaluru and has further exposure plans. • P  E investor Goldman Sachs recently joined hands with Nitesh Estates to invest up to `1,600 crore ($ 250 million approximately) in commercial real-estate assets. • T  he Embassy Group joined hands with PE firm Blackstone to acquire a majority stake in the 106-acre business park called Vrindavan Tech Village for `1,200 crore ($ 180 million approximately). This deal is said to be among the largest commercial real estate deals in India. • E  mbassy Group has also entered into an agreement with Cornerstone Group, a Bengaluru-based firm with a large land bank, to develop a 100-acre, 12–million-sq-ft business park near Whitefield, its fourth such project. • In 2011, Maple Tree India China, a wholly owned subsidiary of Temasek Holdings, acquired Assetz Global Technology Park for `800 crore ($ 120 million approximately) • In 2013, the Qatar Investment Authority (QIA) invested `1,800 crore ($ 300 million approximately) in the special purpose vehicle of South India’s largest office space builder RMZ Corp. PE fund Baring Private Equity Partners had invested `500 crore ($ 74.7 million approximately) in the same SPV in 2012. • P  iramal Fund Management invested `1,000 crore ($ 150 million approximately) in Bengaluru over the past year and has plans of investing an equal amount over the next two quarters.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Real Estate

Though builders tried to balance the rising costs by reducing their profit margins and banks cut home-loan interest rates, the sagging demand does not appear to have picked up. One reason for this is a reported mismatch between the price expectation of buyers and what the market is offering. Bengaluru has a huge population of young professionals whose disposable income, though rising, is still limited.

Source: Karnataka Economic Survey, 2014-15

High residential inventory Demand for office space, in turn, creates a need for accommodation for employees. The city remains the premier choice for working professionals. However, the residential-property market in Bengaluru tells the story of mismatch in pricing. The rush of property deals and investments has created a substantial inventory of unsold housing units of around 84,000 in the second quarter of 2015, surpassing Mumbai in the unsold inventory segment. It is reported to be the second-highest unsold inventory among Indian cities. With spiralling costs, homes suddenly seem to have gone out of the reach of most. Today, the average price of a home in Bengaluru is `86 lakh ($ 130 thousand approximately), making it unaffordable. Over the last few years, prices of housing units have seen a steady increase of 10 to 15 percent a year. This steep increase has primarily two reasons: rising demand for certain urban areas coupled with limited supply of free space in those areas, and rising cost of construction materials. Of course, there is also the factor of seasonal demand. Over the last 1 year, the cost of sand has gone up by 300 percent, the cost of cement by 70 percent, and the cost of other inputs like white cement, tiles and electrical fittings by around 30 percent. The shortage of skilled but cheap labour added to the cost escalation. As Bengaluru became a costlier city to live in, labour moved away.

While the demand is for homes within a price band of `35 lakh to `60 lakh ($ 52,000–90,000 approximately) the supply is in the average range of `75 lakh to `1 crore ($ 113,000-150,000 approximately). There also appears to be an oversupply of big-ticket residential units costing `1 crore ($113,000 approximately) and above, causing a further pile-up of inventories. Real estate observers say that a large part of the sales is on account of purchases of second homes, which again fall into the category of investments and cannot, therefore, be at a very high price. There must be sufficient cushion for secondary sales at a profit. The State Government’s recent decision to defer the revision of the guidance value for properties in Bengaluru may provide some respite to the builders. The guidance value is the indicative rate defined by the government that forms the basis of assessing stamp duty and annual property tax applicable. Currently, the stamp duty in urban areas is 5.6 percent of the total guidance value and the registration fee is 1 percent of the same. So, any upward revision of the guidance value would further push up costs and create a disincentive for property buyers. New areas of demand Till 2000, the real-estate sector was restricted to housing, commercial (small in scale) and industrial segments, but now newer businesses which are more land-intensive such as entertainment, healthcare, education, transit-oriented real estate and housing for senior citizens have become the demand generators. According to a FICCI-Ernst & Young report, affordable housing, amusement parks, schools and colleges, logistics hubs and large hospitals are pushing development of 143


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Real Estate

Luxury condominiums have caught popular fancy, both as an investment and a lifestyle option as seen here in Prestige Shantiniketan. Photo: Prestige Group large-format real-estate properties. The report says that the amusement park industry is set to grow in the near future. Of the 42 amusement parks in south India, 8 are in Karnataka. Several builders have already seen opportunity in developing housing for senior citizens. Till April 2013, 40 such projects were planned in south India, of which 7 were in Bengaluru. According to media reports, some more similar projects have been added on since. Most of these projects are in and around Bengaluru. Housing facilities for senior citizens also increase the need for easy access to healthcare establishments. The FICCI-Ernst & Young report mentions the emergence of themed residential townships that are expected to spur growth of real estate. Proposals by corporate groups to establish world-class sports facilities in Bengaluru in designated sports townships are expected to fuel the growth of sports-themed residential colonies. The report talks about the potential of Bengaluru to morph into an Aerotropolis, or an airport city.

144

Boost from government The Karnataka government’s focus on building adequate infrastructure to fuel the growth of the state economy has had a very direct impact on the real-estate sector. The state has recognised the importance of public-private-partnerships (PPPs) and also of standalone private projects to bolster infrastructure in the state. Going forward, the PPP model will play a crucial role in the development of roads, bridges, seaports, airports, water supply schemes, sewage disposal systems, urban transport systems, tourism infrastructure, industrial estates and parks, agriculture and horticulture markets, among others. The Karnataka Industrial Policy 2014-15 envisages acquisition of thousands of acres of land by the government to boost industrial activity. The government has reportedly acquired 30,000 acres of land and has identified another 20,000 acres to be bought. The state’s vision document for the manufacturing sector proposes to set up National Investment and Manufacturing Zones (NIMZs) which are expected to incentivise manufacturing bases to move away from Bengaluru.


RESURGENT KARNATAKA

Real Estate

To begin with, Tumakuru, Bidar, Kolar and Kalaburagi districts have been chosen as locations for NIMZs, which are to be developed through Special Purpose Vehicles. The NIMZs will comprise integrated industrial townships, skill development facilities and land-use plans based on zoning. To decongest Bengaluru further and promote other regions through industrial activity, the government has announced the demarcation of Special Investment Regions (SIRs). Mysuru, Mangaluru, Hassan, Bagalkote, Vijayapura, Raichur, Koppal and Ballari are to be developed as industrial nodes. Real-estate industry observers say that if these plans fructify and residential townships come up near these centres, it may help in checking the uncontrolled escalation in land prices around Bengaluru. Apart from industrial development, the State Government is focusing on creating affordable housing for the lower socioeconomic strata and for special categories of people like ex-servicemen in urban and rural areas. The government is in the process of creating a huge land bank for the purpose. Add to this drinking water supply and drainage schemes across 14 zones. In all, 6 water supply schemes are on the anvil to supply drinking water to 10 towns, which will also be serviced with sewage and waste management schemes. With land as the most precious building block of infrastructure development, real estate in Karnataka will continue to be the investors’ delight.

5


RESURGENT KARNATAKA

INSIGHTS

The numbers say it all: Bengaluru tops the list of the most attractive real estate investment city in India (Top 10 cities in the Indian real estate market- PropEquity report). It was Number 6 in all-India property rankings in 2009, and rose to Number 1 in 2015. Bengaluru has the highest private equity (PE) investment in the sector for the past 5 years. With almost 500 new projects in 2014, the city accounted for 20 percent of the total number launched in the country’s top 14 cities. Bengaluru remained unaffected by a slowdown in the real estate sector throughout India, and even tops the list of the most attractive real-estate investment city, leaving the National Capital Region (NCR) and Mumbai behind. Besides the capital city, real estate players are keen for growth to happen in the Tier-2 cities and are confident that growth will happen with adequate infrastructure.

Real Estate

investments in industry need to be drawn to these centres, coupled with investments in infrastructure. Better connectivity between Bengaluru and Mysuru is one simple initiative which has been pending for long. As Mangaluru has been chosen as one of the smart city locations, it could certainly improve its infrastructure and attract investments in industry. What has led to Bengaluru topping the list of the most attractive city for real estate investment in India? The primary reason for this is that the supply is demand-based in Bengaluru. The requirement for housing goes hand in hand with the rapid growth in the office segment. The demand for office space has been consistent with new businesses being seeded, especially in the e-commerce segment. In addition to this, the price raise in the apartment and office segments has been gradual, in line with demand unlike some other markets. What policy changes would help sustain the growth of the real estate sector in Karnataka? Housing for this sector needs tax breaks to make it successful and attractive for the private enterprise to play a role. This needs to be in the form of lower VAT, lower service tax for consumers, and free installation of capital equipment and connectivity for utilities to the development. Buyers cannot be expected to bear the cost of bringing trunk infrastructure, including roads, to the site. This needs to be a state expense.

Irfan Razack is Chairman & Managing Director of Prestige Group, which has changed the skyline of Bengaluru and is present in residential, commercial, retail, leisure and hospitality sectors in several southern cities. He is currently National Chairman of Confederation of Real Estate Developers Associations of India (CREDAI). Razack says tax breaks would ensure that the real estate market in Karnataka would continue to attract private players. What factors can accelerate real estate investments outside Bengaluru? The two markets that show promise are Mangaluru and Mysuru. Both cities have attracted investment from real estate majors over the last decade. To give a fillip to both these markets, 146

In addition, land must be made available by the government for this specific market at reasonable prices, as is being provided for other Industries. Offering plots is not a solution; we need to provide a built, habitable unit with amenities. On the government side, speedy issue of approvals for a project in totality is paramount. The ease of obtaining all permissions will go a long way in improving the overall business environment in real estate, which also includes benefit to the end-consumer by way of lower cost and quicker delivery. In cases where approvals have been issued, the government should not take retrospective actions. This also includes matters such as cancellation/revocation of approvals, which have been obtained with substantial investments in time, finance and effort.


RESURGENT KARNATAKA

INSIGHTS

Real Estate

Mangaluru is a unique city (which is yet to be classified as Tier-1 city) with the rare advantages of four key connectivity drivers. It is superbly connected with a seaport, international airport, great highway and railway connectivity. The city, which has historical attractions and scenic beauty, could be promoted as a tourism hub. It already has industrial hubs in refinery and chemicals, making it an ideal city for progress in the industrial and services sectors. The government could provide a boost to industry in Mangaluru by promoting PPP projects that would improve job creation.

Om Ahuja is CEO of Residential of Brigade Group, one of south India’s leading property developers with projects across Bengaluru, Chikkamagaluru, Hyderabad, Kochi, Mangaluru and Mysuru. The real estate sector in Karnataka will flourish in the coming days with an increase in jobs and affordability, and the proposed regulatory Bill will help this growth, says Ahuja. Which are the cities, apart from Bengaluru, that hold potential for real estate hubs in Karnataka? How can this potential be developed? Mysuru and Mangaluru are two cities which are promising and having huge potential for growth. Rated as one of the best city in India for cleanliness in the recent Swach Bharat survey, Mysuru has 3 key drivers for growth: abundant availability of water (most cities are struggling on this front), weather (pollution-free and good), and good infrastructure. The city, well-known for being a great education and tourist hub, is poised for big growth. The government could help Mysuru become one of the great cities in the country by solving the challenge of connectivity. Rolling out the following projects will help immensely: • 6 to 8-lane highway connectivity from Bengaluru. After Pune was connected with Mumbai with 8-lane expressway, Pune‘s prospects dramatically changed within 3-5 years and the city generated more jobs than did Mumbai annually. • A  full-fledged airport in Mysuru will increase tourism prospects for Mysuru and Kodagu. • T  rain connectivity from Bengaluru with double tracks, increased frequency and timing.

What have been the factors responsible for Bengaluru remaining unaffected by the slowdown in the real estate sector in India? In this fiscal, Bengaluru city takes the lead over all other cities of India on 4 fronts: • Best City in terms of office leasing – the demand for office space is the best in India. • Best City in terms of residential sales – the number of unit sales is more than that in Delhi NCR and Mumbai MMR. • Best City in terms of job creation – in the last 4 years, Bengaluru city leased 12-13 million sq ft of office space. The thumb rule is that every 100 sq ft generates one job, and over 1.2 million new jobs are generated every year in the city. • Best City in terms of affordability – the cost of living is far more affordable when compared to cities like MMR and NCR. For example, the apartment price per sq ft is cheaper when compared to Thane (suburb of Mumbai) and Pune city. Bengaluru continues to be the best destination for doing business, attracting talent, and, above all, its cosmopolitan character is its biggest advantage. What would help Bengaluru retain its lead as a favourite of real estate investors? The Government of Karnataka has done a commendable job in uplifting the standard of living by introducing consumer-friendly policies and providing affordable houses to the masses. Very few cities in India have the possibility that fresh employed individuals can afford homes within 3 years of starting their career. With consumer-friendly policies, Bengaluru provides opportunity to buy homes costing `4,000-7,000 per sq ft from A Grade developers within the city limits, which is not possible in any other metro city of India.

147


RESURGENT KARNATAKA

INSIGHTS

The industry is optimistic that the State Government will help the city grow by working on the following initiatives: The full rollout early of Metro Phase I 2016 will bring a lot of relief to the common man in the city. Metro connectivity to Whitefield, the airport and Electronic City will reduce number of vehicles in the city, cut pollution, and improve the environment. The government could initiate PPP projects for water supply to the city from the reservoirs in neighbouring areas. It should also improve power supply; converting waste to electricity would solve the problem of garbage disposal and ensure a clean city. Karnataka Government is known for many firsts in terms of polices. Bengaluru can be the first city to introduce singlewindow clearance for developers to help save costs and improve delivery timelines.

Real Estate

several IT Parks emerging in these regions. The heightened manufacturing activity and global corporations setting up operations have been very promising in terms of employment generation. The large talent pool, strong business orientation and infrastructure growth in the Tier-2 cities have increased the demand for commercial and residential real estate. The price points in these micro-markets are very attractive for end-users and investors with 5-7 years’ perspective. Realistic land valuations are also very encouraging, enabling new project launches, which offer a wide range of housing options to consumers. Continued focus on infrastructure development and provision of the social fabric necessary for housing large communities is essential to accelerate investments in these cities. Creating hubs around the specific economic activities such as seaports, trading and manufacturing as well as access to educational institutions would lead to sustained growth of the real estate sector in these regions. What more should the government be doing for the real estate sector in Karnataka? It is critical to have a more transparent mechanism for plan sanctions, better coordination between departments for faster clearances and clearer guidelines. The stamp duties and taxes, if increased gradually, would also encourage investments.

Ashish Puravankara is Managing Director of Puravankara Projects Ltd and President-Elect of the Governing Body of Confederation of Real Estate Developers Associations of India (CREDAI), Bengaluru. The government could collaborate with real estate developers to develop roads and other infrastructure to help inclusive growth in the state, he says. Is pricing an inducement for real estate investments outside  Bengaluru? Karnataka, being a state with high economic growth, has attracted investments across sectors over the years. With Bengaluru known as the IT hub, the Tier-2 cities such as Mysuru, Mangaluru and Hubballi have followed suit with 148

Affordable housing needs to be prioritised with sops by the government, lower input taxes, different power tariffs and a dedicated department for this housing segment would boost the sector. Collaborating with real estate developers for infrastructure development of roads and other amenities would be a significant step to ensure inclusive growth in the state.


RESURGENT KARNATAKA

INSIGHTS

Real Estate

infrastructure, and Mysuru, Mangaluru and Hubballi have the potential to become real estate hubs. The following factors play a huge role in accelerating real estate investments outside Bengaluru: Speedy connectivity by rail and road is of utmost importance. Either by developing expressway or elevated link, we should be able to travel at an average speed of 100 km/hour so that from Bengaluru we can reach Mysuru in 1 ½ hours and the other two towns in about 3 ½ hours. The Tier-2 cities should have planned development of roads, water, electricity, broadband and other connectivity right at the beginning.

Balakrishna Hegde is Founder & MD of Chartered Housing. A member of the National Executive Council of Confederation of Real Estate Developers Associations of India (CREDAI), he says that the lessons from Bengaluru should help guide the planned development of Tier-2 cities in the state. What factors would accelerate real estate investments outside Bengaluru? Bengaluru has grown beyond the limits of its current

 he government should develop clusters in the periphery of T the towns, like Singapore developed its periphery areas. The government should first acquire land, and landholders should be made a party to the future returns. It should provide topclass infrastructure, earmark areas for retail, commercial, office, schools, hospitals, entertainment, parks and playgrounds so that the cluster in itself becomes an independent township, and bill/auction/allot such areas for development by private entrepreneurs. Speedy connectivity to the centre of the city should also be provided from these clusters.

9


A home on Bengaluru's only hill. Gift yourself something truly precious.

A private estate designed by the peerless Moshe Safdie. Lavish homes with cantilevered balconies that do justice to their singular location - atop Bengaluru's only hill. A swanky private clubhouse with an infinity pool that fades into the horizon. If you're looking for something that's one of a kind, you couldn't do better than a residence at The Promont.

Apartments from ₹ 2.80 crore* onwards | Promont Hills, SY No. 168. Off Ittamadu Main Road, Hosakerehalli Village, Banashankari Stage III, Bengaluru 560085| For enquiries: 1800 3004 8282 *Conditions Apply CONTEMPORARY DESIGN BY INTERNATIONAL ARCHITECTS • AIR CONDITIONED RESIDENCES • VOLAKAS MARBLE FLOORING IN LIVING AND DINING ROOMS, AND MASTER BED ROOMS • ENGINEERED WOODEN FLOORINGS IN OTHER BEDROOMS • JACUZZI IN MASTER BATHROOM (4BHK RESIDENCES) • FIXTURES AND FITTINGS BY DURAVIT AND HANSGROHE • INTERNATIONALLY BRANDED MODULAR KITCHEN • OUTDOOR INFINITY EDGE SWIMMING POOL • INDOOR TEMPERATURE-CONTROLLED SWIMMING POOL • SQUASH COURTS.


INDUSTRY OVERVIEW

Smart Cities Smart Cities Role model: Electronics City

RESURGENT KARNATAKA

Spread over 2 million sq ft, the Cisco campus in Bengaluru uses the Internet of Everything (IoE) to provide an integrated & intelligent office experience. This campus-as-a-city serves as a blueprint for the future of smart cities in India. Photo: Cisco


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Much before Prime Minister Narendra Modi announced the proposal to set up 100 smart cities in India, Bengaluru had taken the lead towards getting ‘smart’. The industrial hub of Electronics City in south-east Bengaluru is well on its way to becoming Asia’s first IoE (Internet of Everything) innovation hub. Electronics City, located 20 km from the city centre, in Anekal taluk in Bengaluru Urban district, is one of the largest industrial parks in the country. Spread over 332 acres, it houses global majors, multinationals and iconic Indian IT firms like Infosys and Wipro. In July 2014, Cisco, a global networking products major, entered into a partnership with Electronics City Industries Association (ELCIA) to develop India’s first end–to-end ‘Internet of Everything (IoE) Innovation Hub’. Cisco helps provide the network infrastructure and expertise for testing and production of electronic products prototypes for an IoE-enabled smart city environment. Through this ‘Living Lab’, companies can build solutions for Smart City Infrastructure Management including Smart Parking, Smart CCTV Surveillance, Smart Streetlighting, and Smart Water Management. The project is utilising Cisco’s Smart City + Connected City Wifi solution to enable community Wifi services. Going forward, focus would also be on deploying digitally enabled transportation, healthcare, education, utilities and energy grid. This development impacts about 1.25 lakh people who are employed directly in Electronics City, which accounts for 25 percent of the country’s software and hardware exports. Smart cities in Karnataka When the smart city project was announced by the Union Government in mid-2015, Bengaluru and Mysuru did not make the cut to the Top 100 urban agglomerations named. Low recovery of property taxes, water cess, delay in execution of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) projects and failure to utilise JNNURM funds, and heavy debt accrual have been cited as major reasons for the denial of entry to these two cities to the inaugural round of the smart city project. The good news was that 6 Tier-2 cities in Karnataka Mangaluru, Shivamogga, Belagavi, Hubballi-Dharwad, Tumakuru

Smart Cities

and Davangere - were chosen to be converted into smart cities. The Karnataka Urban Infrastructure Development and Finance Corporation has been appointed the nodal agency for purposes of implementation. Under the 5 year project (2015–2019), each smart city would be given `500 crore ($75 million approximately) from the Centre and an additional `500 crore ($75 million approximately) from the State Government. It is celebration time for the realty sector players and other infrastructure companies in Karnataka. Riding on the uncontrolled growth of Bengaluru, the real estate sector in the state has already seen a boom, and smart cities can only make the going more rewarding for them. The concept of smart cities is not just limited to the construction of buildings; it necessitates construction of a whole array of accompanying products and services and thus there exists an immense scope for a number companies and institutions to be a part of this development boom. Karnataka is not new to such kind of planned development of urban spaces, given its Electronics City experience. The 35year-old industrial township functions independently with its own local governance machinery and is maintained by an association representing 180 units in the enclave. What is a smart city and why do we need it at all? Urbanisation is increasing rapidly the world over. There is a marked rise in the number of people leaving rural settlements and migrating to cities in search of sustenance and betterquality life. This movement has a direct correlation to the fact that dependence on the primary sector for livelihood is being increasingly substituted by the presence of an ever-proliferating tertiary and services sector. This trend is global, cutting across developed, developing as well as underdeveloped nations. India is no exception. According to the 2011 Census figures, nearly 31 percent of India’s current population lives in urban areas and contributes 63 percent to India’s GDP. By 2030, urban areas are expected to house 40 percent of India’s population and contribute 75 percent to the country’s GDP. India would need about 500 new cities to accommodate this influx (estimated at 600 million, a 100 percent growth over the 2001 figure of 290 million).

159


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Smart Cities

Examples of cities benefitting from such innovations can be found across the world. Barcelona is a prime example of a smart city that uses smart technology for a variety of purposes, from irrigation of the city’s green spaces (sensor technology controls water use in fountains in parks, leading to a potential yearly savings of $60 million) to a bus network to free emergency telecare. The Spanish city also intends to use electric vehicles as its standard mode of public and private transport.

Source: India Urbanisation Econometric Model; McKinsey Global Institute analysis With urbanisation creeping in on the rural hinterland at a scorching pace and the resultant demand on infrastructure and real estate, the Government of India realised that there was a need for cities that could cope with the challenges of urban living and also be potential magnets for investment. Smart cities can be a possible answer. Technology advancements Technological innovation are to form the backbone of the entire smart city project. The government as well as private players plan to bring about and introduce systems that would make functioning of smart cities smooth both for the people residing in it and the people in charge of its administration. For instance, under the smart city project, cities will have a smart grid system, well-maintained roads, smart traffic lights, advanced CCTV cameras installed on traffic signals, good water and sewerage system, and e-governance systems for all major public services. Almost none of our current metropolitan cities can boast of such high-tech facilities, but, in the present times, such innovations are seen more as necessities than luxuries for the smooth functioning of society. Ensuring the effective use of technology to deliver services and manage complex civic problems is also high on priority. Though in the initial days, adopting such cost-intensive solutions may come at a heavy price in the form of high fixed establishment costs and a long gestation period, benefits are likely to accrue from these in the long run.

160

Opportunities in India In India, streetlighting today accounts for 1.5 percent of total electricity consumption, according to consulting firm McKinsey. Cities that use networked motion-detection lights can save 70-80 percent of electricity and costs, according to an independent, global trial of LED technology. Smart streetlighting initiatives can also reduce crime in the area by 7 percent because of better visibility. Buildings in India account for nearly 40 percent of the total energy consumption, and it is estimated to reach 50 percent by 2030. McKinsey estimates that, between 2010 and 2020, 700 million to 900 million sq m of new residential and commercial space needs to be built. This would increase energy consumption exponentially unless buildings are outfitted with intelligent sensors and networked management systems that collect and analyse energy-use data. Even in the case of traffic congestion, which some estimates say cost India `6.6 lakh crore ($10 billion approximately) a year in wasted time and fuel, apart from adversely affecting urban congestion and air pollution levels, technological advancements can be of great help. Cities embedded with network sensors in parking spaces that relay to drivers real-time information and directions to available parking spots, would, for instance, be of great use. What defines a smart city? A smart city, simply put, is an urban region that is highly advanced in terms of its overall infrastructure, sustainable real estate, communications and market viability. The term has no fixed definition but broadly encompasses certain attributes that are deemed essential for the proper functioning of any modern-day city.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Smart Cities

India’s ‘smart cities’ can draw inspiration from Barcelona, which was declared as the ‘Smartest City in the World’ by Juniper Research in 2015. It has integrated critical city infrastructure like power grids, water systems, lighting and transportation into a cohesive Internet of Things. Photo: BCN Smart City

The official document lays down the following essential characteristics: • • • • • • •

Adequate water supply Assured electricity supply Sanitation, including solid waste management Efficient urban mobility and public transport Affordable housing, especially for the poor Robust IT connectivity and digitalisation Good governance, especially e-governance and citizen participation • Sustainable environment • Safety and security of citizens, particularly of women, children and the elderly • Availability of proper health and education facilities The Central Government’s reference note for Members of Parliament on the issue offers a fairly simple definition: “Smart Cities are those that are able to attract investments.” Everything else, such as good infrastructure and simple processes that make it easy to start and run businesses, hence, are an offshoot of this simple capital-driven pivot. Modus operandi Urbanisation in India has seldom been a planned endeavour, barring a few cities which have been drafted on the drawing board and then populated. For the longest time, it has been viewed as a byproduct of failed regional planning. Today, as the country debates ways to create smart cities, a few pointers

are emerging.There are around four different ways by which the government can go about constructing smart cities: Retrofitting: This will involve planning the smart city in an existing built-up area to make the existing area more efficient and liveable. An area over 500 acres will be identified, and, depending on the existing level of infrastructure services, the cities will prepare a strategy to become smart. Since existing structures are largely expected to remain intact in this model, this process is expected to be completed in a shorter timespan, leading to its replication in another part of the city. Redevelopment: This will effect a replacement of the existing built-up environment and enable co-creation of a new layout with enhanced infrastructure via mixed land-use and increased density. Redevelopment envisages an area of over 50 acres, identified by Urban Local Bodies (ULBs) in consultation with citizens. Greenfield development: This will introduce Smart Solutions in a previously vacant area (over 250 acres) by using innovative planning, plan financing and plan implementation tools with provision for affordable housing, especially for the poor. Greenfield developments are required around cities to address the needs of the expanding population. Pan-city development: This envisages application of selected Smart Solutions to the existing citywide infrastructure. Application of Smart Solutions will involve the use of technology, information and data to make infrastructure and services better.

161


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Smart Cities

hold stakes in a 50:50 ratio. The private player or financial institutions will also get equity stake in the SPV, which can extend to a maximum of 50 percent. In addition to the above sources, cities can explore options such as municipal bonds or the National Investment and Infrastructure Fund. ULBs can also dig into the increased funds that will be devolved to them - `87,144 crore ($13 billion approximately) for 2015–2020 - according to the fourteenth Finance Commission’s recommendations. Financing Smart Cities The Smart City Mission will be operated as a Centrally Sponsored Scheme (CSS), and the Central Government proposes to give financial support to the mission to the extent of `48,000 crore ($7.2 billion approximately) over the next 5 years, implying an average `100 crore ($15 million approximately) per city per year. An equal amount will have to be contributed by the state. For a project of such a gargantuan scale, the Centre estimates an infusion of nearly `4 lakh crore ($60 billion approximately) worth of funds, which is expected to come in chiefly through private investments and loans from multilateral institutions, among other sources. For instance, the Union Government is set to approach World Bank and Asian Development Bank for a loan of about `5,000 crore ($753 million approximately) and `10,000 crore ($1.5 billion approximately) each for 2015–2020. Ministry officials have reportedly said that similar proposals will also be sent for procuring funding from the BRICS New Development Bank, China-led Asian Investment Infrastructure Bank, Japan International Cooperation Agency (JICA), Agence Française de Développement (AFD), and Germany’s GIZ and KfW Development Bank. Apart from the Centre’s contribution, every city is expected to set up a special-purpose vehicle (SPV) to implement its smart city plan - an SPV in which the state and the municipal body will 162

Government officials concede that land prices will escalate in each of the 100 smart cities, a process which has already begun. Hence it is suggested that municipal bodies could gather additional funds for the mission from various land-based resource mobilisation instruments such as vacant-land tax, land conversion charges and floor-space index premium. Cities have also been told to consider the fourteenth Finance Commission’s recommendation of incrementally increasing taxes on property and profession or increasing the scope of entertainment tax. The reason for the mission garnering widespread interest is that it opens up India’s urban infrastructure and services sector to private investments, which was until now largely closed. Urban areas can, over the next decade, redefine everything, from how we live, to what we do and where we work, our standards of living, our societal setup, to even the way law, governance, and democracy functions. Essentially, it is seen as an activity with far-reaching implications on a free-market economy, citizen empowerment and deepening the process of participatory democracy.


RESURGENT KARNATAKA

INSIGHTS

The 6 cities chosen in Karnataka are competing for the Smart City Challenge, to be among the first 20 of the 100 smart cities that will get the first stage of funding from the Central Government. Experts cite financial accountability and efficient management of civic assets as crucial elements, and offer viable means to make Indian cities smart.

Smart Cities

to excessive control by state government over their ability to tax. The 74th Amendment has not been implemented in its true spirit. Smart city guidelines are trying to remedy this situation. City-citizen interaction has to be seamless and contextual. Technology will play a crucial role in this. State governments will have to handhold and empower ULBs to find ways to become financially self-sufficient by apportioning tax revenues such as professional tax, petroleum cess and the proposed infrastructure cess. Citywide municipal WiFi is an essential citizen-centric service for seamless and contextual interaction with the citizens. Online delivery of municipal services is crucial for efficiency and accountability. 

RK Misra, Founder-Director of Centre for SMART Cities, says that after 65 years of neglect, Indian cities have a clear vision for their journey towards becoming economically vibrant and ecologically sustainable smart cities. How can medium-sized cities in Karnataka achieve ‘smartness’ in the areas of governance, economy, mobility, environment and living? Mayors and Commissioners of Karnataka’s chosen smart cities have a deep understanding of their socio-economic needs and are able to articulate it well. What they lack is exposure to the municipal governance processes, long-term planning for their citywide projects and economic justification for their greenfield projects. We cannot blame them as they have exposure only to a project-based development approach with no planning of resources or any formal training. This smart city selection process is an education and a valuable experience for them.  The keys to a smart city are robust institutional infrastructure, physical infrastructure, and social infrastructure. Our cities have very weak institutional infrastructure. ULBs (urban local bodies) have democratic autonomy but are financially constrained due

Physical infrastructure has 4 elements - mobility, safety, sanitation, and sustainability. Some of the measures that could be adopted are: priority to pedestrianisation in CBD area with restrictions on private transport in CBDs, data-driven intelligent security systems, establishment of zero-discharge central processing units that convert waste to bio-energy very close to the city limits (to avoid long-distance transportation), and residential solar power to ensure 24x7 power availability and reduce demand on the grid.   Lakes, forests, hills, beaches and coastal areas are the most neglected in our quest for rapid economic growth. This should not be. Most smart cities of the world have found a harmonious balance and there is readily available expertise in this area. Natural environment and features are essential value-adds to attract investment provided they are well-managed and preserved. There need be no conflict between preservation and economic growth in small-sized to mid-sized cities such as the chosen 6.   What are the business models being used to monetise investments and what is the customer value proposition? How will Return on Investment be measured? Any investment by a ‘for-profit’ entity, whether in smart cities or otherwise, has to have a reasonable rate of return with minimum policy and financial uncertainties. Indian smart cities, if implemented in the true spirit of the guidelines proposed, will become economic growth engines and hence provide a compelling case for private investors. However, investors will look for well-curated, off-the-shelf projects where they can 163


RESURGENT KARNATAKA

INSIGHTS

assess the investment and associated returns. Vague projects with uncertain scope, confusing guidelines and frequent policy changes have been the norm in the past, and hence our cities do not attract private investment in creating public infrastructure and services. To ensure private participation, we need to create a single empowered statutory body, as envisaged in Smart City Guidelines, in the form of an SPV, which will be the nodal agency to conceive, plan, prepare DPR and tender projects to seek private participation, with clear articulation of deliverables.  Various models exist to attract private-sector investment depending on the nature of the public infrastructure projects. Tolling is a well-established and preferred model for arterial and elevated road corridors; annuity payments are used for creation and maintenance of new and existing infrastructure which cannot be tolled. DeBOOT and BOOT models are common for standalone revenue-generating infrastructure such as parking lots, municipal WiFi, BRTS and Light Rail systems. In a market economy, open bidding is the best method for price discovery and rate of return analysis. Private investors submit their bids based on other riskreward analysis. 

Pavan Srinath, Fellow, Centre for Smart City Governance at the Takshashila Institution, suggests that India’s smart cities should look at the ‘charter city’ concept. 164

Smart Cities

How, why and when will Indian businesses invest in making cities smart? Indian businesses will invest in making cities smart when the government provides public goods, ensures the rule of law and is faithful to contracts. Often, contracts signed by Indian municipal authorities are not upheld, and government authorities change their mind at will, making it exceedingly hard for businesses to work with governments with integrity. City governments should also modernise land titles and property tax records and make it easy for private entities to do business in the city by reducing the time it takes to get electricity and water connections, construction permits and more. Apart from private investment, are there other innovative financial instruments that could be adopted in funding a city’s transition to smartness? It is a myth that Indian municipalities are poor. All Indian municipalities have many assets at their disposal, including land and properties. A smart city is one that professionalises its accounts and uses innovative means to extract sustainable incomes from their assets. A smart city is one that professionally manages its advertisement and property tax revenues by using technology and intelligent contracting. One way to think about a smart city councillor or corporator is one who works on his/her ward, and, at the end of their 5-year term, property rates in the ward would have gone up significantly.  A smart city is also one that pursues economic development explicitly, works towards attracting businesses and job creators with dedicated staff to do so. While this is not a financial instrument per se, it certainly can be an innovative way to increase city finances.  Do cities in India have quantifiable targets?   To understand truly how well our cities are doing, India needs to start measuring city or metropolitan-level GDP. Cities are also natural units of economic activity, and with effort, India can start measuring GDP yearly for all million-plus cities. All high-income countries today measure city GDPs. For India to sustain an 8 percent GDP growth, Indian city GDPs need to be growing at 20 percent or more a year. By understanding how well each of our cities do year on year, policymakers and the public will get a better handle on how our cities are doing, and what public and private inputs are transforming into meaningful outcomes. Measuring GDP along with other standard parameters like municipal finances and service delivery levels are vital to the health and development of India’s cities. 


RESURGENT KARNATAKA

INSIGHTS

Could Western pilot projects be replicated here? India’s smart cities mission should look to the ‘charter cities’ concept that has been championed by economist Paul Romer. The idea of charter cities is to create a ‘policy window’ for select charter cities – where they can experiment with local rules and laws that are not encumbered by complex regulation that usually exists in other parts of the state or the country. Karnataka’s urban governance laws require significant reform – from allowing private buses to formally recognising the role of taxi aggregators to having functional ward committees and more.

Smart Cities

The final goals would have to be clearly quantified and made achievable through meticulous processes. The large incidence of smartphones in India would help the citizens adapt seamlessly to the system of smart living. Tools like social media would help in real-time informatics to the citizens in situations of weather, calamities, congestion and so on, to facilitate smart adaptation.

Such reform can take a long time, and partial reforms can often show limited outcomes. SEZs get a tax break while chartercity areas get a break from some of the laws that can pose an impediment to the development of smart cities. And, thus they get a chance to develop new laws and rules and test them out.

Naresh V Narasimhan is an urbanist, activist and creative entrepreneur. The Principal Architect and Managing Partner of Venkataramanan Associates, says that Indian cities should start exploring the concept of ‘crowd equity’ and should be administered like private companies.

Indrajit Kembhavi, Co-Principal Architect of Kembhavi Architecture Foundation, says smart cities would curb the brain drain from medium-sized cities and reduce pressure on Tier-1 cities. How will citizens get ‘smart’ in adopting technology? When and what will prompt this behavioural change and how long will this process take? What is the role of traditional and social media in promoting smart living? A unique feature of the Smart City project is citizens’ participation at the ULB Levels, that is, a bottom-up approach rather than a top-down approach. The current stage of the Smart City Challenge involves eliciting inputs and varied ideas from local citizens and experts for evaluation and implementation.

What could be the alternative source of funding for the smart city projects? Apart from city bonds, there are many financial instruments are available to cities to raise funds, but these are mostly defeated by policies. For instance, the city of Bengaluru has over 20,000 properties that it owns and it still has no money. I call it the ‘golden begging bowl syndrome’. This should happen at least for specific areas in the city where there are a lot of commercial activity. There are new funding instruments such as crowd equity, something like public-private partnership (PPP) which other cities have used to raise much-needed funds. There are many others like city development bonds that people will subscribe to if there is clarity in financial reporting. 

165


RESURGENT KARNATAKA

INDUSTRY STARTUPS OVERVIEW

Startups

From chai to space, and a spectrum of areas in between, Bengaluru has seen an explosion of startups. It is estimated that about 65 percent of the venture capital funding that comes into India is invested in Bengaluru. Be it companies like Chai Point that have scaled up the serving of tea or companies like Dhruva Space, which is the first private player to develop a small satellite platform or Axiom Research Labs whose Team Indus won the Google Lunar XPRIZE, a global competition to develop low-cost methods of robotic space exploration, they are all here.

High-octane environment Ever since a Global Startup Eco-system ranking system ranked it among the Top 20 hotspots, Bengaluru has stayed on the list, climbing up the ranks. In 2015, Bengaluru has scaled the ranks to the 15th slot. Commenting on the upward movement, the report says that the city’s ecosystem has transformed itself into a “highoctane environment that offers early-stage startups the opportunity to turn into billion-dollar companies”. This high-octane environment comes from the foundation that has been laid by the Information Technology (IT) industry; one-third of the country’s software exports go out of Bengaluru. Brand Bengaluru The reputation built over the years is making Karnataka’s capital the most trusted place in India for startups. The city does have problems that are no different from any other metro or major city in the country, especially in matters of urban infrastructure. Yet, the pull of Brand Bengaluru is irresistible. Anybody who has a saleable idea thinks of it as the best place to be in. It boils down to the simple fact that the maximum number of ingredients that 166

make for an ecosystem most conducive for a startup is here. For one, it is the city that has established itself as the technology capital of the country and can always be trusted to support newer ideas. After all, branding is also about repositioning. Some of the major factors responsible for creating the startup ecosystem are not very different from what spurred on the growth of IT – availability of talent, funding and cross-disciplinary acumen. The largest engineering talent pool in the country is available in Bengaluru. It has been so for the last 3 decades thanks to the policy assiduously followed by successive governments to encourage the private sector in higher education. In fact, privatisation of higher education and a focus on science and technology has been a part of the state’s inheritance since the early part of the last century. Essentially, the feeder line for the startup ecosystem comes from the same talent pool that has matured, in several ways, with an eclectic mix of the mid-level IT professional with young energy. Startups are being driven by this collaboration across various levels.


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Talent and funding It is in this context that the Global Startup Ecosystem Ranking System has placed Bengaluru at number 15. It has been established that Bengaluru records the second-lowest turnaround time among the top 20 startup locations in the world to hire engineering talent. Additionally, the talent is also cost-efficient. It is because of the availability of talent in the IT sector that e-commerce companies like Flipkart, Snapdeal and Inmobi came to Bengaluru in the first place. Their phenomenal growth rates and skyrocketing valuations are, to a large extent, credited to a culture that values new businesses. Their success has forced investors to look at the entrepreneurial spirit in the city through a new prism, resulting in the further loosening of purse strings for other workable business ideas. What this effectively means is that if the idea is coming from Bengaluru and the team is working out of this city, the trust quotient goes up substantially, making it one of the most attractive propositions for the investor as well. The brand equity of the city is also bolstered by the cosmopolitan nature of its people, and, more importantly, by the fact that it has the most experienced hands in the world to provide solutions to all kinds of problems across multiple disciplines – from science and technology to space to avionics. The added advantage is that the success rate has established that the capacity to scale up is rather high in India’s IT capital.

Startups

taxi aggregator Ola Cabs. Half of the total `40,938 crore ($6.2 billion approximately) funding that came in 2014 went into just 3 companies. In a way, it proved the point that Bengaluru-based startups do make a mark in the face of competition from deeppocketed multinationals. No wonder then that Bengaluru has recorded the highest number of startups in the country. Out of 12,340 startups in India, 4,442 are in Bengaluru, followed by Pune with 2,468, Delhi with 1,851, and Mumbai by 1,111. The southern cities of Chennai and Hyderabad are into 3-digit figures with 987 and 864 startups, respectively. State’s startup policy Over the last two decades or so, the IT industry in Karnataka has run on its own steam. It would not be incorrect to say that industry has been on auto-pilot, needing little support except at a policy level. Yet, the vibrant linkage that has been maintained between industry and the state government has been quite remarkable and unlike in other states. Historically, public policy in the state has, in many ways, been pioneering as well as pragmatic.

It is similar logic that has fostered the spirit of entrepreneurship. Those with the ability to take risks, employees have quit wellpaying, comfortable jobs to simply pursue their dreams. After all, what the 7 founders of Infosys or the lone woman founder of Biocon launched, some decades ago, were also startups, which have now grown to stand on the highest pedestal of credibility and scalability. The advantage today, however, is that in the event of failure, the entrepreneurs can always get back to the sector that gave them the courage to break free from tradition.

The State Government’s intention is quite clear. If industry can be assisted in ways that will enhance direct and indirect employment, it will not hesitate to get into mission mode. Its experience with the IT sector in the last few decades is there for all to see because it generated 3 million direct jobs and 9 million indirect jobs and contributed 40 percent of software exports from India. It is fairly well-understood that when the startups begin to succeed, there cannot be better examples of employment generation in the era of the internet economy. It is in this context that the Karnataka Government has come out with a Startup Policy 2015-2020 which envisages creation of 6 lakh direct and 12 lakh indirect new jobs. The experience of the state with the growth of the IT and ITES industry is evidence enough to be hopeful that this goal will be met.

Bengaluru now stands at the sixth position in terms of the growth of venture capital (VC) funding among the top 20 positions in the world. The entry of global major Amazon into the Indian market has led to mega funding rounds for Flipkart and Snapdeal. An indicator of the interest of investors in startups is evident in the late-stage investments that went into Flipkart, Snapdeal and even

Fund of Funds: The government wants to stimulate the growth of 20,000 technology based startups, including 6,000 product startups, in the next 4 years. It wants to mobilise `2,000 crore ($295 million approximately) funding for investment in startups through government intervention alone by putting in place what it calls as the ‘Fund for Funds’ system, which effectively means

167


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Startups

Source: VCCEdge that the government will invest in venture funds which, in turn, will invest in startups. There is a provision to disburse a part of this Fund of Funds during the angel stage itself. An investment committee that would include government officials, industry and academic experts with sector-specific domain knowledge would be set up to decide such investment. Technology for social good: The government, of course, has its own pet milestone to also achieve. It wants such investment to facilitate the generation of 25 innovative technology solutions with an impact on sectors like healthcare, food security, clean environment and universal education, among other objectives. Ideally, it would like funded startups to provide workable and scalable solutions to some of the challenges the government faces. The government has even planned to incentivise its approach by identifying 5 challenges each year, and the winners would automatically be eligible to utilise the incubation space that the government would be facilitating in various ways. The identification of the challenges will be decided by a panel consisting of representatives of government, subject specialists and non-governmental organisations. Incubation: The government’s role of a facilitator has to be looked at in this context. It has started off its Startup Policy implementation from the ground level, so to speak, by extending the New Age Incubation Network (NAIN) from the engineering colleges to the professional and postgraduate institutions in 168

Tier-2 cities in a phased manner. The aim is to set up incubators in at least 50 academic institutions, where student projects will be taken up and performance levels will be rewarded by way of grants for supporting operational expenses as well as annual financial support of `3 lakh ($4,425 approximately) per project. The students also have the added incentive of interning in some of the startup companies for relevant experience. The government has offered to fund Technology Business Incubators (TBIs) in institutions of higher learning, particularly those involved in research and development and collaboration with industry. Again, the government has identified thrust areas that, in the long run, would have a social impact. Like, for instance, it has identified information and communication technology (ICT), internet of things (IoT), software products, manufacturing electronics systems design, robotics, healthcare and bio-pharma, agriculture and allied fields, clean technology, energy, water and its recycling, education, and nanotechnology as focus areas. Startup cell: To help entrepreneurs wade through the maze of administrative matters relating to the setting up of a startup, the government has started a Startup Cell which would assist them in registration as per the norms of The Factories Act, The Maternity Benefit Act, The Karnataka Shops and Commercial Establishments Act, the Contract Labour (Regulations and Abolition) Act, The Payment of Wages Act, the Minimum Wages Act, the Employment Exchanges (Compulsory Notification of Vacancies) Act, as well as the


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Startups

Hackathons and other events centred around startups have become a regular feature in Bengaluru.These events serve as platforms to bring entrepreneurs and potential investors together. Photo: Microsoft law governing the safety of women working in the night for startups. The procedures may appear to be cumbersome to many who would be more focused on developing technologies that would ease the way of doing business in the era of the internet economy, but the laws of the land would have to be implemented. In this context, it is hoped that the Startup Cell would function like the Central Government-run Software Technology Parks of India (STPI) functioned during the IT boom in Bengaluru. The procedures were streamlined in such an efficient manner that many an IT head would, even today, swear by the efficiency of the STPI office in playing the true role of a facilitator. Monitoring mechanism: This, perhaps, is the reason for the government to have the Chief Minister as the head of the Startup Council, which will also include representatives of the industry to review the implementation of the Startup Policy. There would also be a Startup Policy Monitoring and Review Committee which would be headed by the Chief Secretary of the state. This committee would not only work out the operational guidelines for administration of all the programmes envisaged by the government in its policy but also review it and submit a report to

the Startup Council annually. The primary purpose of these two panels is to ensure that the policy is reviewed annually so that the state government can make mid-course corrections, if necessary. Some challenges In terms of policy-making, there is little doubt that Karnataka has taken the lead in ways that other states are yet to do. However, it also means that the challenges before the government are that much more. The state’s capital has become the technology capital of the country which calls for policy-making that breaks new ground every time a new technology changes the way of doing business. For instance, taxation procedures have to necessarily be revisited and reviewed and newer systems put in place to face the challenge posed by e-commerce companies. The rest of India is looking to Karnataka to define an ‘online marketplace’ and this has to necessarily come from Bengaluru because it is as much the e-commerce capital as the start-up capital. This needs to be finely balanced with the state’s need to galvanise commercial tax revenue. 169


RESURGENT KARNATAKA

INSIGHTS

Karnataka leads the country in the number of startups, with the capital Bengaluru being home to an estimated 5,400 startups. Industry body National Association of Software & Services (NASSCOM) has begun the ‘10,000 Startups’ initiative to transform the Indian entrepreneurial ecosystem and rolled out its first Startup Warehouse, a co-working facility, in Bengaluru in partnership with the Government of Karnataka. The startup brigade is charged up about the multitude of opportunities for growth. The very problems that bog down the country are the drivers for startups, which see possibilities to provide solutions. Apart from IT/Tech, the key areas of growth would be in sustainable energy, healthcare, education, city management, social entrepreneurship, financial services, agriculture and tourism, says entrepreneurs. All that they seek from the government is better infrastructure.

Startups

beyond being just another outsourcing centre and we are the startup capital of the country. A cauldron of many things has come together very nicely to make this happen: access to information, presence of technology capabilities, being able to look westward and see what is happening out there, combined by the fact that there are so many problems in India that need solving. A lot of interesting startups have sprung up from mid-2000, and it has had a bit of a snowball effect. We are in a frenzy now and the attitude seems to be that if you are not in the startup community, you are probably not with it. This may be a bit extreme, but it is good. What are the other areas besides IT/Tech that need focus over the next 10 years? Technology is an enabler and not a final objective. Startups should be looking at problems to solve. There is no dearth of challenges In India and there are great opportunities for any young person or a young startup to find an issue and try and solve it. Technology would help solve problems such as access to healthcare or education or access to markets for SME products faster, better and at a higher scale and more economically. That is really the power of technology. While one can create technology products and technology solutions, my belief is always that if a business problem can be solved and the technology can make a big difference, it is a winner combination.

Meena Ganesh is Co-Founder, MD & CEO of home healthcare company Portea Medical. Selected by Fortune India as one of the 50 ‘Most Powerful Women in Business’, she is also the co-promoter of nearly a dozen, new-age Internet/Technologyenabled startups. The good thing about Bengaluru is that there is an understanding of both business and technology, she says. What was the point of inflexion that allowed Bengaluru to move away from being an outsourcing centre to the innovative startup capital that it is today? This is a very exciting time for Bengaluru. We have moved much

170

The good thing is that in a city like Bengaluru, there is an understanding of both business and technology, and it is possible to create all kinds of new businesses in a place like Bengaluru. How could the state government encourage such activities? If a startup sees the opportunity in any sector, it will enter it. I would rather the government should concentrate on giving a better place for people to live in and to build businesses than to worry about which sectors they need to support. The problems will get solved provided people are supported to do whatever they are capable of doing. The big challenge right now is infrastructure issues.


RESURGENT KARNATAKA

INSIGHTS

Startups

Naveen Tiwari, Founder and CEO of mobile advertising company InMobi, has been involved in fuelling around 30 startups in India. Streamlining the tax structure is the need of the hour, he says.

Udhay Shankar, heads the accelerator programme in Axilor Ventures. The boost for startups has to stretch beyond Bengaluru and reach other places, he says.

How do you see Bengaluru’s growth as an innovative startup capital? I believe Bengaluru has reached escape velocity in terms of becoming the default destination for startups not only in Karnataka but also across India. It really is the Silicon Valley of India. By startups, I mean companies with the individual potential to create `6,688 crore ($1 billion approximately) worth of value and more. The state government should take inspiration from the Israeli startup ecosystem and should focus all its efforts on creating a series of billion-dollar unicorn companies and on increasing the number of acquisitions in the `668 crore ($100 million approximately) range over the next 5 years. This is the explosive growth story that Bengaluru deserves. 

What are the potential hits and misses of the startup warehouse initiative? I think that, overall, the positives are more than the negatives. For a startup, every cost matters and such facilities provide office space to entrepreneurs. Secondly, in my experience, the very fact of having a bunch of entrepreneurs in the same space actually acts as an aid to innovation. By having a bunch of startups together in the same space, they can bounce ideas off each other.

What steps would help Karnataka bring in more investment? The government should leave capital allocation to the market – that is the job of investors: to develop companies that are likely to create more value than they consume. The government’s role is to create an enabling environment and step out of the way. A key area where movement is desperately needed is legislative changes towards tax laws to incentivise companies to list in India, and for investors to be able to put money into Indian startups.

Should the state government invest outside Bengaluru or will that take away the focus from developing it into a world-class city? The state government should certainly invest not only in warehouses but also in the ecosystem such as infrastructure development and communication. You need to build an economic cluster – research universities for people to hire from, to develop on the R&D that has been started in these research universities. So, certainly, other centres need to be developed and that is in the process of happening – but it will take time. I do not think it is a zero-sum game; you can do things for Bengaluru, and you can do things for other places as well. Investment has to be spread over to other places.

171


RESURGENT KARNATAKA

INSIGHTS

Startups

The co-founders of Clonect Solutions, Balaji GS Rao & Shailesh Agrawal say that simplified regulations would help the growth of startups. Clonect Solutions builds niche software products for enterprise governance, risk management & compliance management (GRC), and provides related assistance. How could Karnataka bring in more investment? Do the allocations from the 100 crore startup fund need to include any other issues? The availability of a diverse talent pool in this state is compelling for new investments. However, the first and foremost need is to solve the core issue of infrastructure before we reach a point of no-return. Secondly, it would be easy for investors to assess if compliance requirements are well-articulated and the maze of regulations is de-mystified. We believe that if the compliance

needs are known upfront and policy directions stay consistent, more investment would flow. For startups, keeping rules and regulations, and the compliance requirements simple would be as important as funding. Finding out non-compliances when the companies are ready to grow and expand, and investing time and resources in rectifying them at that time would be the toughest challenge for any startup and would be competitive disadvantages. Does it seem likely that Bengaluru’s startup culture can be replicated elsewhere in the state? I do believe startups are not about geography at all. Geography is a constricting factor. Startups can happen anywhere. Just as long as you provide a basic ecosystem of good connectivity, communication and educated manpower, a startup can happen in Timbuktu. Tumakuru is as good a location for a startup as is Mangaluru. Bengaluru, to that extent, is only a paradigm that needs to be broken. Incidentally, Hubballi speaks of a good startup ecosystem thanks to Gururaj Deshpande (legendary Indian American VC and entrepreneur).

Harish Bijoor is a brand-domain specialist and runs Harish Bijoor Consults Inc that has a presence in Hong Kong, Seattle, London, Istanbul, Dubai and the Indian subcontinent. The right ecosystem will help more startups to bloom in different cities, he says. 172

What are the other areas that need focus ? Whether a startup caters to a B2C market or a B2B, it is all about the consumer. Startups do require to be trained in the discipline of listening to their customers. The key areas of focus need to be about the realms of branding, consumer insight and human resource management.


RESURGENT KARNATAKA

INSIGHTS

Startups

world-class infrastructure, nurturing, mentoring, and access to capital and customers. All of that happens in the warehouses. This also will be a part of the national network that we are creating of warehouses. I am also on the committee that takes care of the new-age incubators and that is also another way they are encouraging to go to Tier-2 cities. 9 districts have been identified. The new-age incubators are like a mini-warehouse, and could be a feeder to the main warehouse. What do you think are the hits and misses of this startup warehouse initiative? I think it has been a very successful one overall. We need to make the model very scalable for other cities to adopt and implement it from what we have learnt, and for others to participate. Ravi Gururaj, Serial Entrepreneur, Chair–Product Council & Chair, Executive Council, NASSCOM, is positive that the startup warehouses would yield results in the long term. Apart from the startup warehouse initiative in partnerships with NASSCOM, how could Karnataka explore more dimensions of entrepreneurship in IT? One of the many elements, and a very important element, of encouraging a startup entrepreneurship ecosystem is to provide

Obviously, we would like to have many more startup warehouses because the demand for them is unlimited. We need many more and we need to nurture these and keep track of long-term goals and results. This is like a nursery for plants; you go plant the seed, then you get a little bit of the plant but you do not get to eat right away – trees will take a lot longer to grow. It has been a very successful programme.

SouthFire is an award winning mobility startup based in Bengaluru, and is an example of the sheer variety of ideas springing up in this city. Photo : SouthFire 173


TOURISM From regulation to empowerment

An UNESCO World Heritage Site, Hampi in central Karnataka recorded the second highest tourist footfall in the country, after Agra, in 2015. Photo: Asha Thadani 175


RESURGENT KARNATAKA

176

INDUSTRY OVERVIEW

Tourism


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Tourism

Source: Karnataka Tourism Vision Group, 2014

177


RESURGENT KARNATAKA

178

INDUSTRY OVERVIEW

Tourism


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Tourism

Photo courtesy: Karnataka Tourism department

The Bandipur National Park & Wildlife Sanctuary is home to 30 different species of endangered animals; there are more than100 tigers & 3,000 elephants here. Over 85,000 domestic & international tourists visited it in 2013-14. Photo: Department of Tourism, GoK The state is home to a number of other heritage sites – 507 out of the 3,600 Centrally protected monuments are in Karnataka. The state has a presence of rich historical architecture as a legacy of the number of dynasties such as the Chalukyas, Rashtrakutas, Kadambas, Deccan Sultanate, Vijayanagar Empire, Wodeyars and Nayakas, who ruled the area at different points in time. Srirangapatna and sites of Hoysala and the Deccan Sultanate architecture are currently being considered for the UNESCO world-heritage tag. Coastal Tourism Karnataka has a 320-km-long coastline, dotted with virgin beaches, opportunities for water sports, scenic river inlets, beautiful landscapes, and enough space to set up tourist accommodation. However, the state falls under the Coastal Regulation Zone-3, which implies that all projects in the coastal areas need approval from the Union Ministry of Environment and Forests – a bureaucratic hurdle that hinders the rapid development of coastal tourism. Mr. Deshpande has already petitioned the Central Ministry for relaxing the Coastal Regulation Zone-3 rules as per the Swaminathan Committee recommendations. He cited how, in other states and nations, construction of beach resorts was being allowed in a radius of 50-100 metres of the sea, whereas, in

Karnataka, no construction was allowed within a 500-metre radius. During PTM 2015, Mr. Deshpande announced that progress on this front seemed imminent, with the Prime Minister’s Office and the Environment Ministry responding positively to the request for relaxing the norms. He also announced the creation of a Coastal Master Plan with recommendations from expert consultants. This plan is expected to help in building the coastal region as a tourism asset. Regarding the Master Plan, Deshpande said: “We have 90 beaches along the 320-km coastline, but have identified only 44 beaches and four islands for tourism purposes.” Mangaluru has been selected to be developed as a premier coastal tourist destination, in tune with international standards. At PTM 2015, Union Minister for Chemicals and Fertilisers HN Ananth Kumar announced that the Centre had launched Project Mausam, which involved Karnataka along with other states. The project proposes to establish cross-cultural linkages and revival of historic, cultural and economic ties with 39 Indian Ocean countries. Karnataka is also a part of the Sagarmala programme in which the entire Indian coastline is supposed to be developed.

179


RESURGENT KARNATAKA

INDUSTRY OVERVIEW

Tourism

Dropping from a height of 960 ft, the Jog Falls in Shivamogga is the second highest waterfalls in India. Photo: Department of Tourism, GoK

180


RESURGENT KARNATAKA

INSIGHTS

Tourism

Ravichandar V, Co-Chairman of Karnataka Tourism Vision Group appointed by the Government of Karnataka, discusses how Karnataka’s tourism sector compares to other states, possible solutions to roadblocks in the way of growth and the key goals of the Tourism Policy 2014-19.

181


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Tourism

PK Mohankumar, veteran hotelier, holds forth on the makings of an attractive tourist product and extols the example of Kodagu.

Revathy Iyer, owner of the award-winning homestay Silver Brook Estate in Kodagu, explains Kodagu’s success as a tourist destination.

182


RESURGENT KARNATAKA

INSIGHTS

Tourism

Dr.Jija Madhavan Harisingh, career bureaucrat and former Managing Director of Jungle Lodges and Resorts, Karnataka, discusses the potential for ecotourism in the state.

183


RESURGENT KARNATAKA RESURGENT KARNATAKA

INSIGHTS

Dr. Chetana Arjun, CEO, Olisvell Healthcure Medical Services, a medical tourism company based in Bengaluru and Tanzania, speaks about increasing accessibility for medical tourists.

184

Tourism


COOK FOOD. SERVE LOVE.


Resurgent Karnataka  

Resurgent Karnataka 2016 showcases the diverse strengths of Karnataka which make it a destination of choice for investors from India and the...

Read more
Read more
Similar to
Popular now
Just for you