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Pune: The new IT boomtown!

Nandini Lakshman | October 25, 2004

It must be a sign of the times hanging on a modest, single-storied house 12 km from Pune. "Rooms vacant," says the handwritten board pinned to the gate, "Only IT and BPO professionals need apply.

That signboard in a rural hamlet might have seemed bizarre a few years ago. Not any longer. This is Hinjewadi, off the Mumbai Pune Expressway, and one of the hottest information technology destinations mushrooming in Maharashtra.

It boasts an IT park, where the rural and contemporary reside side by side. With a population of barely 1,500 people, the village, surrounded by hills and paddy fields still has a rural feel with buffaloes ambling about aimlessly against the backdrop of a furiously pumping tubewell.

But Hinjewadi is moving into the 21st century at high speed. The once ramshackle homes, which are now doubling up as eateries are getting a fresh coat of paint. And builders have moved in to woo the big buck IT professionals who are taking over the village.

Huge hoardings offer homes with everything from jacuzzis to landscaped gardens. "If you are working at IT park, you shouldn't be living anywhere else," screams one hoarding.

Hinjewadi's around 500-acre Rajeev Gandhi Technology Park is already home to scores of IT, IT-enabled services and business process outsourcing units. And hordes of others are on the way. From new companies to existing ones, which are expanding, they are all heading to Pune and its outskirts.

Tata Technologies, KPIT Systems, Cognizant and Geometrix Solutions have already set up base here. And the country's two best-known IT heavyweights -- Infosys and Wipro -- have sprawling campuses.

And many more are jostling for space in the park developed by the state investment agency Maharashtra Industrial Development Corporation.

Also, MIDC is currently holding talks with international names like Deloitte Consulting, Dell Computers and Hewlett Packard, which want to set up back-office operations in the area. Already, 107 companies have registered for land during the last fiscal compared to only 50 two years ago.

Hinjewadi isn't the only place exerting a magnet-like charm on the IT industry. There are 18 IT parks slated to come up at distances of anywhere between 8km to 20km from Pune and others are also in the pipeline. There will soon be IT parks in once-sleepy villages like Talawde and Kharadi.

If all goes well, even the industrial belt of Talegaon is being considered for an IT hub. According to the Software Technology Parks of India data, the private sector alone is building 15 IT parks.

"After Bangalore, we are the most preferred destination for IT companies," says V Kanade, chief executive officer, MIDC. In the last two years, he says that land inquiries have gone up from just one a week to at least two daily.

So a host of midsized private builders like Kolte, Embassy, Panchsheel and Kumar have also jumped into the fray. Just 3.5 km away from the Pune race course, farmer-turned-builder Satish Magar is promoting his private Magarpatta city.

Magarpatta is a 400-acre township with almost 92 acres are being developed as a cybercity. The rest will be used for residential complexes, schools, hospitals and other support services.

The companies that have moved in here include the global leader in communication systems applications & services Avaya, BPO company EXL, British insurance major Aviva, multinational software solution provider Amdocs and global services company Cymbal.

Says the head of a leading ITES company headquartered in Banglaore, which has opened office at Kharadi: "Give Pune two more years, and it will overtake Bangalore."

That may be an overstatement. But the figures show that Maharashtra is turning into a destination to be reckoned with. According to figures provided by Nasscom, the country's apex body for the software industry, the state has 1,191 IT-related units.

Also, Maharashtra's software exports touched over Rs 8,500 crore (Rs 85 billion) in the year ending March 2004. This was a 54.65 per cent increase, the largest for any state, over the previous year.

Karnataka, of course, still leads the pack with exports of Rs 18,100 and growth of over 45 per cent last year. Some industry experts predict that Maharashtra will catch up in the coming years.

At the same time, it isn't that Maharashtra is the only aggressive state. Others like Tamilnadu and Andhra Pradesh are snapping at its heels. Even Kolkata is sprucing up to be an IT destination. During the last fiscal, the two southern states notched up exports of Rs 7,404 crore (Rs 74.04 billion) and Rs 5,025 crore (Rs 50.25 billion) respectively.

MIDC's joint CEO, Bhushan Gagrani insists that the figures don't tell the whole story and that Maharashtra's contribution to the IT industry could be bigger.

"Often, companies are registered elsewhere and their Maharashtra revenues are clubbed with the consolidated figure they present. You don't expect Wipro and Infosys to say how much they make from here," he says.

The top IT players claim that Pune, despite its late start, has the edge. Says Houston University alumnus Ashish Shah, head of Pune-based software testing outfit, SNS Technology which is expanding at Hinjewadi: "Pune has a lot more benefits. It scores on many fronts."

Why? For one, Bangalore is virtually saturated. Hyderabad appears to have lost its edge after Chandrababu Naidu's government in Andhra Pradesh was toppled in the last polls.

Chennai has a headstart but isn't selling itself as aggressively as the others. And Kolkata is just taking off and is still vulnerable to labour problems. "All these issues place Pune in an advantageous position," says Gagrani.

That's why, having missed the bus during the IT boom of the '90s, it's in a hurry to make up for lost time now. "The trigger is largely competition and we want to leverage the host of advantages that are in our favour," he adds.

So what makes Pune's suburbs so attractive to IT players? Attractive infrastructure, say companies. Good roads apart, it is the proximity to Pune city, which is a 25-minute to an hour's drive away. Also, Mumbai with its international airport is only a three-and-a-half hour's drive away by the expressway.

The Government, in its bid to woo the hi-tech industries also threw in liberal incentives in its IT and ITES Policy, 2003. The main issue was land, so it waived stamp duties for owned and leased properties built on MIDC land.

For the private builders, until 2002, there was a 50 per cent exemption on stamp duty. With the new policy, a further 25 per cent has been waived. Then electricity and octroi duties have been exempted and sales tax reduced on locally procured capital goods.

Says Priti Rao, the Infosys head in Pune: "The Maharashtra government has been extremely co-operative and progressive in its IT initiatives. This has been an important factor in the growth of Infosys' operations here."

Infosys has two campuses in Pune. The first 25 acres has a capacity of 3,000 seats. Another campus is coming up on 112 acres with a planned investment of around Rs 250 crore (Rs 2.5 billion) over the next couple of years.

One good thing in Maharashtra's favour is that MIDC has also changed with the times. Since it started in 1962, MIDC bought land from farmers, developed it and then sold it to companies without involving any middle agency. "We were not in land dealing, but development," says Gagrani.

Now, for the past four months, as part of its new found aggression, MIDC has been wooing private builders to develop its land. Why the change in strategy? It has realised, that every IT player does not aspire to be an Infosys or Wipro, at least to begin with.

The small and medium enterprises don't want sprawling campuses and they don't want to lock away funds unnecessarily. "They want small offices ranging from 3,000 sq ft to 25,000 sq ft to seat 60 to 100 people," says Gagrani.

And with no built up offices with MIDC, they often moved to other states. Today, with practically every state wooing IT companies that was something Maharashtra could do without.

Also, MIDC has realised the power of the SMEs. In 1992, it built the sprawling Millennium Business Park off Mumbai, at Mahape on the Thane-Belapur road. More than a decade later, 25 per cent of the land still remains vacant. "Since we didn't want to lock up our funds in built up area, we were not able to service the SMEs," says Gagrani.

That's when it tied up with builders to develop its land. Of course, it laid down criteria so that it only dealt with experienced builders. They should have developed a minimum 200,000 sq ft of built up IT area. This is like killing two birds with one stone. Says Anil Kawade, regional officer at MIDC's office in Pune.

"Since they are developing our land, they also want to market it aggressively. That way it enhances our marketing strength and we become like a one-stop shop." Adds Magar, "Multinationals need customised buildings which is not possible for MIDC to provide."

Moreover, being in Pune gives companies a competitive environment without the hassles of big city life. And don't forget that 32 per cent of India's software professionals are from Mumbai and Pune.

Also, Maharashtra accounts for 35 per cent of personal computer penetration and 32 per cent of Internet subscribers, its two main cities churn out trained technical personnel in droves. More than 169,000 people are added to the skilled manpower pool every year.

Says Jayashree Joglekar, chief operating officer of Wipro Technologies' Securities group, "Pune has many educational institutions which provide good quality skill sets."

With a headcount of 4,500, this is the eighth location for Wipro, which also includes its BPO outfit -- Wipro Spectramind. With two buildings already up and running on its 25 acres, three more structures are coming up in the next six months.

But many others are putting big bets on Pune. For instance, when the Rs 125 crore (Rs 1.25 billion) manufacturing and banking software company KPIT acquired Cummins Information Technology, it had six offices in different parts of Pune and it also opened an outpost in Bangalore.

Today, with business growing, it has invested in 10 acres at Hinjewadi. It plans to increase its 1,250 headcount to 1,500 by this year-end. Says Ravi Pandit, chairman KPIT, "It will cut our costs by 10 per cent. Productivity will increase and it will be easier for our clients to come up as often as possible." Over the next two-three years, when its third phase of construction ends, KPIT will have a 450,000 sq ft office in Hinjewadi.

Inevitably, rapid growth is taking its toll in Pune. Until two years ago employees seldom left a job and attrition rates were near zero. Now, they are on the rise.

"Competition has eroded some level of commitment from the employee side," says Rajendra Dave, COO & country manager of Network Security Solutions Ltd. Even so, they are nowhere near the 40 per cent attrition rates in Mumbai's BPO market.

Also, the IT boom has pushed up land costs. Two years ago, land prices in Hinjewadi were Rs 100,000 an acre. Today, it's closer to Rs 500,000 for an acre. At Kharadi, which is within the Pune Corporation limits, prices are up from Rs 700,000 to Rs 10 lakh (Rs 1 million) an acre while it is currently Rs 300,000 at Talawde, up from Rs 100,000 an acre two years ago.

Then, there's the issue of domestic connectivity. The military-owned Pune airport is small. So, there aren't enough flights to different places.

Now, the government has put in a proposal to build an airport at Chakan, 15 km from Pune on 1,000 hectares of land. The civil aviation ministry has given an in principle clearance but the final formalities are being worked out.

This is not stopping IT companies from flocking to Pune. As Magar says: "We would like to expand to other places, but Pune is where the market is now."

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