India’s Tech Hubs: Bengaluru vs Hyderabad
Bengaluru, the capital of Karnataka state, currently holds the top spot as investors favorite IT destination in India. In 2017, for example, Bengaluru received US 48.2 billion of investment into its IT sector.
Hyderabad, the capital city of Telangana state, received just US $ 805 million. But it is slowly gaining spotlight for its growth potential.
But where should you locate your business? Each city offers a different business environment for tech companies and investors should explore the basics before any market entry research or site visits.
Bengaluru is among the largest technology clusters in the world.
The city headquarters about 80 percent of global IT companies, and accounts for almost 34 percent of India’s total IT exports. Out of the 871 multi-national companies, which have their research and development (R&D) centres in India, 700 are located in Bengaluru.
In 2017, the city ranked 19 on the World Economic Forum list of 85 most digitally advanced cities on the planet and was named the world’s most dynamic city based on factors including innovation and technology.
Further, a globally competitive talent pool and the availability of capital for early-stage investment make it one of the best destination for IT investments in India.
Top IT centers in Bengaluru
Whitefield in Bengaluru is one of the country’s foremost IT hubs. It houses not only numerous IT parks but also industries, retailers and residential properties. The area boasts of prominent developers that offer mid-range to luxury residential projects.
It is one of Bangalore’s oldest tech parks and is sprawled across 69 acres of land. The distance from the city center is about 21kms (13 miles) which takes about 25 minutes by car.
Top companies headquartered in the area are IBM, SP labs, Transworld ICT solutions, and CSC Software Services India.
Electronics City is another major IT hub of Bengaluru and its foundation was laid back in the 1970s. Located 20 km (12.4miles) from the city centre, the 332-acre region is one of the largest industrial parks in the country housing global majors, multinationals companies, and iconic firms like Infosys and Wipro.
Other top IT centers in Bengaluru are Marathahalli located in the south eastern part of the city; Indiranagar in east-central Bengaluru; and Koramangala in the south of Bengaluru.
Hyderabad has emerged as a new IT hub, giving stiff competition to Bengaluru for the country’s top IT destination.
In the 2018-19 financial year, the export of IT products from Hyderabad touched a new high of INR 1.09 lakh crores (US 415.82 billion), growing 17 percent, which is nearly double the country’s nine percent growth rate.
While the absorption rate of commercial space by the IT industry has remained considerably lower than Bengaluru, the city’s IT sector continues to grow sustainably backed by the availability of proper infrastructure, skilled manpower, presence of a large number technical education institutions, and a proactive local government.
Top IT centers in Hyderabad
The Hyderabad Information Technology and Engineering Consultancy City (HITEC) is spread across 151 acres. The city comprises of several IT parks such as L&T Infocity, Vanenburg IT Park, Mindspace, Cyberabad SEZ, DLF IT SEZ, TCS Synergy Park and built-to-suit campuses of several major technology companies.
Gachibowli is a major IT suburb of Hyderabad located in the northwest part of the city. It is home to leading names such as Microsoft, Amazon, Deloitte, Accenture, TCS, Wipro, and Infosys.
Incentives for IT investments
The Karnataka government is in the process of formulating a revised IT policy for the state to strengthen the its position in the IT and IT enabled services (ITeS) industry, and specifically for emerging technologies and R&D.
Currently, companies registered under the Software Technology Park Scheme can avail benefits such as:
- 100 percent foreign equity;
- Corporate income tax exemption up to 90 percent;
- Duty free imports;
- Access to dedicated data communication links; and
- Custom bonding and export certification at a single point.
The state government of Telangana has done much to support the development and growth of the IT industry in Hyderabad. It provides support for land allocations and establishing a single office, ensures continuous power and water supply, access to a rich talent pool, and offers attractive incentive packages to the IT industry.
Some of the common incentives available to companies in the industry include:
- Support in allotment of government land;
- Cost reimbursement of up to 10 percent of retrofitting cost or INR 10 lakhs (US $14,517), whichever is less, to IT companies to conduct retrofitting study and implement the energy efficiency equipment;
- 100 percent reimbursement of stamp duty, transfer duty and registration fee paid by IT industry and communication technology industry companies on sale or lease deeds on the first transaction, and 50 percent on sale or lease deeds on the second transaction (the reimbursement of the registration cost is not applicable for mega projects); and
- 50 percent reimbursement of the cost of filing patents to the companies having their headquarters in Telangana, subject to a limit of INR 2 lakhs (US $2,903).
There are additional incentives available for mega projects, start-up companies, SMEs and mid-scale companies, IT product or R&D companies, companies offering engineering services, women entrepreneurs, and corporate social responsibility.
Bangalore vs Hyderabad: Which tech hub to invest in
One of the biggest advantages that Bangalore’s IT industry has over Hyderabad’s is that Bengaluru houses a unique mix of mature IT organizations, multinationals, as well as startups. This helps create a conducive entrepreneurial eco-system. In addition, the city offers multinationals some of the largest office spaces in Asia and low employer costs.
However, in the past few years, Bengaluru has struggled in absorbing rapid growth, and its investment in infrastructure has not kept pace with overall development, causing traffic snarls, and poor connectivity.
While the infrastructure challenges are not great enough to overlook Bengaluru’s overall attractiveness, they are still a risk to watch out for.
Hyderabad does not yet match Bengaluru as a source of talent. However, the city’s IT infrastructure development is making great progress, with total office stock set to increase by 60 percent by 2021, according to real estate industry reports.
The rates of the units in IT corridors in Hyderabad are around 15 to 20 percent less than Bengaluru.
Besides, the technological development in Hyderabad is focused in one district, HITEC City, which makes planning in the city relatively easy. The cost of living are also comparatively lower than Bengaluru.
While Bengaluru is more established, and might be best suited for larger IT players, Hyderabad is on the rise and a good bet for firms that want a competitive investment destination for a cheaper price.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write firstname.lastname@example.org for more support on doing business in India.
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