Bangalore’s IT Boom and the Grim Reality of Globalisation in Karnataka

— B. Sivaraman

It is no irony that under the overriding logic of globalisation, the clamour for ‘social clause’ and ‘labour standards’ in the West has given way to Business Process Outsourcing (BPO). Bangalore has emerged as the major destination for IT sector capital export (the Indian IT services industry consists largely of customized software development, implementation, and research and development) and BPO (IT-enabled BPO includes a whole range of services, from call centres to accounting back offices), aimed at exploitation of cheaper labour while the labour remuneration in Bangalore continues to remain at less than one-tenth to one-twentieth of what it is in the West. Unlike the Asian Tigers which came up in the earlier phase of imperialist global division of labour, Bangalore is emerging as the most important Third World enclave in the evolving new imperialist division of labour under globalisation, with concentration mainly in the IT industries.

Rapid increase in IT and BPO exports mark the increasing integration of Karnataka’s economy with the global imperialist capital. Karnataka’s software and BPO exports touched Rs. 18,100 crore (nearly four billion US dollar) for 2003-04, a three-year high and a 46 per cent jump over Rs. 12,350 crore recorded for the previous fiscal. Huge as these figures are, we get a more realistic sense when we put them in international perspective. Viewed globally, it is not difficult to see that the Indian IT services industry is still quite a small player. In 2002, internationally this industry was about $ 386 billion and the Indian IT industry accounted for only 1.9% of this industry. In the realm of IT-enabled BPO, India’s share in 2001 was a paltry 0.34% ($2.4 billion in a global volume of $ 712 billion).

A closer look at the export profile of Karnataka also reveals a major structural imbalance. The IT boom is not backed by any commensurate growth in other industries or services. Though Karnataka contributes only 5.5% to India’s GDP, the state’s IT production accounts for one-third of IT production in the country. The state has a 36 per cent share in India’s software exports, but its share in the country’s overall exports is only 7%. Readymade garments and leather goods constitute the second major export item from Karnataka, and here also the same phenomenon of imperialist capital exploiting cheap labour from Bangalore operates. Leaving aside these two main categories of exports, Karnataka exports only commodities like coffee, spices, silk, cashew nuts, handicrafts and incense sticks.

Export of capital from the developed countries, especially in the IT and BPO sectors, marks a growing imperialist penetration in Karnataka. In 2003-04 Karnataka moved to second position in attracting FDI as it approved 934 FDI proposals worth Rs 7826 crore (Rs 78.26 billion) during this year. Between the Global Investors Meet held in Karnataka in 2000 and the Coastal Investors Meet held in December 2003, Karnataka approved 150 mega projects with an investment of Rs 59,625 crore (Rs 596.25 billion) and 601 large and medium projects with an investment of Rs 11,205 crore (Rs 112.05 billion), most of them being located in Bangalore.

Bangalore is the fourth largest technology hub in the world. A total of 168 new IT firms were added in 2003-04 with an investment of Rs 2,400 crores, including 110 foreign firms which invested Rs 1,970 crores in Bangalore. Forty-four new BPO firms were set up during the period. About 116 software companies and four electronic hardware companies registered with STPI-Bangalore during 2002-03 taking the overall number of units under its fold to 1154. At least three companies with foreign equity registered in Bangalore every fortnight as against one company a week in the previous year. Business Process Outsourcing (BPO) was the fastest growing sector with 41 new companies approved. Apart from MNCs, major Indian IT companies had also expanded and branched out into Bangalore. However, the small and medium companies registered a negative growth in registration and the domination of large-scale industries characterizes the IT sector growth in the state.

The rapid growth of IT industries in Bangalore under globalisation has thrown up its own contradictions. The growth is not uniform and it shows signs of faltering because of the severe infrastructural crisis in Bangalore. “We have not seen any infrastructure growth in the last five years in Bangalore and we do not foresee any growth in the next five years. It is difficult to sustain in Bangalore,” said Wipro’s Chairman Azim Premji, who is India’s richest person. In a city of six million people, the narrow roads and bylanes are choked with 5,95,000 registered motor vehicles and 16,28,065 two-wheelers. Transport department officials put the daily figure of vehicle registration between 600 and 700. To add to the woes, Karnataka has a power shortage of 1,500 megawatts — which officials said could grow to between 3,000 and 4,000 megawatts in the next five years if the rapid growth continues.

The World Bank is funding the Greater Bangalore Water Supply Scheme aimed at privatization and selling of domestic water supply. This would turn Karnataka into resembling some Latin American banana republic dependent on the World Bank even for drinking water, to be purchased at a high cost. The World Bank has brought Karnataka within its tentacles through Karnataka Economic Restructuring Loan (KERL) which makes collection of user charges for public services the main condition. One of the main reasons for the delay in sanctioning of the KERL III was the World Bank’s condition demanding that Karnataka privatise one of its electricity supply companies. In the ADB funded Karnataka Urban Development and Coastal Environment Management Project (KUDCEM) — where the ADB’s co-financing component is US$175 million — project managers have coerced local municipal authorities into accepting terms and conditions that they are unable to justify to the public. In order to repay the project loans, Municipal Councils were required to hike land taxes mooted as part of the self assessment schemes (SAS) along with other user fees on services covered by KUDCEM project. Unable to carry the public with them, some municipalities have passed resolutions against such increases.

The IT boom has created only about 75,000 jobs for IT professionals whereas under the globalisation era more than 1 lakh workers in engineering and ancillary units lost their jobs in Bangalore taking the total industrial employment in Bangalore to 4,58,245 as on 31 March 2001 . Industrial estates like Peenya are languishing under industrial restructuring imposed by globalisation.

Globalisation has sharply aggravated social inequality in Bangalore. 35% of Bangalore’s population lives in slums. But due to globalisation a thin strata of very rich elite has emerged in Bangalore. The growing number of glitzy shopping malls is an indicator of that. Bangalore has come up with a new theatre complex in Koramangala where a single ticket is priced at Rs.500, a sum unaffordable even for the traditional middle class. Roof garden restaurants patterned as airport lounges and catering to an elite clientele of more than 500 at a time, are common in Bangalore . The growing market for such fashionable elite consumers only confirms the emergence of a narrow stratum of filthy rich crowd in Bangalore.

More than a third of the city’s 60-lakh plus population lives in slums; but, as on 31 March 2001 , there were only 13,90,079 ration card holders in the city. Large number of slum-dwellers, especially migrant labourers, have no ration cards. Poverty in Karnataka acquires a larger urban face. A study by the Planning Department of Karnataka reveals that — contrary to popular belief — the incidence of poverty in Karnataka is more acute in urban than rural areas. It reveals that though the urban population is 31% of the state’s population, the urban poor make up 39% of the state’s poor people. The Karnataka government doesn’t have a single low-cost housing scheme for workers and the urban poor but is planning to acquire 3,000 acres around Bangalore to give it gratis to the industries. (See The Hindu, November 30, 2004 )

The years of globalisation have heightened the fiscal vulnerability of Karnataka. The fiscal deficit of the state increased from Rs. 513 crore in 1990-91 to Rs. 4276 crore in 1999-00. Anti-poverty schemes and rural development projects and employment schemes took major cuts under the plea of fiscal constraints though subsidies for irrigation, drinking water supply, higher and technical education and urban health services accounted for only 1.2% of GSDP. At the same time, interest payment on state’s debt as proportion to the GSDP increased from 1% in 1989-90 to 2.9% in 1999-2000.

The Bangalore-centred IT-BPO boom has not led to any revenue boom for the state. The state’s own revenues as a ratio of GSDP increased in the latter half of the ’80s but marginally declined since the mid-’90s. The tax revenues tended to stagnate and even registered a marginal decline in recent years, and the ratio of non-tax revenues in GSDP declined from 2.2 per cent in 1985-86 to 1.9 per cent in 1995-96, and a low of 1.3 per cent in 1998-99. The ratio of tax revenue to GSDP fell from 9.3% in 1990-91 to 8.1% in 1999-2000. The revenue of the state is only around Rs.12,000 crore now and is increasing only gradually during the years of globalisation. Implementing its policy of disinvestment as revenue measure, the state government had identified 20 public sector units in the first phase and 19 in the second phase for privatisation and closure. The government had already issued closure orders in respect of 13 units and privatisation in respect of four units.

Under globalisation the traditional regional inequality in Karnataka only intensified further. The per capita income in Bangalore is Rs. 6,313 whereas it is a measly amount of around Rs. 3,000 for rural Karnataka. In spite of their high growth rate, most of the northern districts are way behind the south in per capita income and other indices. During the former Chief Minister SM Krishna’s time a high-powered committee was set up under the chairmanship of Dr. DM Nanjundappa, Deputy Chairman of the State Planning Board, to look into the question of regional inequality and backwardness of certain regions. According to the high-power committee for redress of regional imbalances, Karnataka needs to invest Rs 31,000 crore during the decade to develop its backward areas. This includes an additional special grant of Rs 16,000 crore over the next eight years and a budgetary allocation of Rs 15,000 crore. Dr Nanjundappa said 60 per cent or Rs 9,600 crore of the proposed additional funding should be allocated to the backward northern districts. The committee said 144 of the 175 taluks in the State are backward — 59 of them in the north and 55 in the south.

Let us also not forget that in the globalisation years Karnataka has turned into a major theatre of agrarian crisis. The import of cheap edible oils that led to the crash of groundnut prices affecting groundnut farmers and the import of heavily subsidised cheap cotton from the US which hurt the cotton growers are two major impacts of the WTO that have led to innumerable suicides among Karnataka farmers. Karnataka was the first state to implement the new agriculture policy in 1996, which ushered in corporate dominated agriculture including floriculture, aquaculture and also the production of special gherkins for export. The State has amended land reform laws to facilitate corporate agriculture and has systematically opened up its agricultural markets, thus exposing its farmers to unregulated competition from outside.

Parvati Menon reports in The Frontline (Volume 21 - Issue 23, Nov. 06 - 19, 2004) that crisis in the agrarian sector in Karnataka was marked, in the years between 2000 and 2004, by a sharp escalation in the number of farmers driven to suicide by poverty and irredeemable debt. According to Ms. Menon, suicide by farmers had started in the mid-1990s. However, the early spate of suicides were largely confined to the poorer and drought-prone districts of north Karnataka. From 2000 the phenomenon spread to other parts of the State, even in regions of advanced irrigated agriculture like Mandya district.

Between 1996 and 2000, the total number of cases of suicide in the State by persons coming under the category of Farming and Agricultural Activity was 10,959 (Crime Records Bureau, Government of Karnataka). Between April 1, 2003 and October 21, 2004, as many as 852 farmers committed suicide (Department of Agriculture, Government of Karnataka).

The farmers’ suicides are still continuing. A report in The Hindu (November 1, 2004) says that 19 Hassan farmers ended their lives in the last five months. Hassan district, the home district of HD Deve Gowda, alone reported 73 cases of suicides till April 1, 2004 but compensation has been paid only in 18 cases. According to the report, there was total crop failure in the last two years due to drought and the government has not settled the crop insurance claims of the affected farmers in the last two years to the tune of Rs.122 crore.

According to another report by Parvati Menon in The Frontline (Volume 18 - Issue 17, Aug. 18 - 31, 2001), in 2001-02, Karnataka was in the grip of the worst drought in 15 years. A large number of agricultural workers and their families were migrating to Maharashtra looking for means of sustenance. A large number of farmers also committed suicide. 23 of the 28 districts in Karnataka were facing drought conditions of varying degrees of intensity. With more than 146 of the 175 taluks recording deficient rainfall as of July 29, 2001, that year’s drought, according to the State government’s Drought Monitoring Cell, was the worst in the last 15 years. The failure of the monsoon had affected agricultural production, rural employment, fodder availability and drinking water availability in villages and towns. But the state government hardly spent anything on drought relief.

In Karnataka, the proportion of commercial bank credit to agriculture went down from 26.1 per cent in 1985 to 15.8 per cent in 2001 (Reserve Bank of India, Statistical Tables Relating to Banks in India). The proportion of rural bank offices to all bank offices went down from 11.3 in 1975 to 6.7 in 2002 in Karnataka. Interest rates in the non-formal sector are very high and farmers who needed money for agricultural operations and subsistence found themselves in a debt trap when cumulative years of drought and crop losses rendered them incapable of repayment. Small farmers deeply in debt to private moneylenders constituted the largest segment of suicide victims.

The World Bank is openly threatening the Karnataka government that its funding of projects in Karnataka would depend upon the state government speeding up the power sector reforms. The government passed the Electricity Reform Act, 1999, and the Cabinet approved a reform policy in December 2001 that drew a privatisation map for the power sector. The government also set up the Karnataka Electricity Regulatory Commission (KERC). Power sector reforms, which might result in the hike of cost of per unit of power up to Rs.4, would further crush the already suffering farmers. Alongside moves in the direction of the eventual privatisation of power distribution, there have been increases in power tariffs that have increased the cost of cultivation and sharpened distress. In Karnataka, the average tariff went up from 81.30 paise a Kilowatt hour (KWH) to 249.9 paise between 1990-91 and 2001-2002. In the Ramdurg taluk of Belgaum district, the tariff on pumpsets was hiked from Rs.300 to Rs.540 per horsepower per month once the distribution company for the region, was set up. Those who did not metre their pumpsets were threatened with a Rs.50,000 fine and imprisonment by the Hubli Electricity Supply Company, which in addition set up a “Pulikesi Brigade” to implement the order. Farmers organised themselves under the Belgaum District Pumpset Owners Association, and retaliated by setting up the “Sangoli Rayanna Brigade” to counter this draconian order. They publicly burnt bills for arrears of Rs.70,000 to Rs.80,000, which they were suddenly saddled with, and resisted the attempts by the “Pulikesi Brigade” to disconnect non-metred pumpsets.

The targeted food distribution system and the decision to cap the food subsidy have denied more and more people access to cheap food. While the present coalition government provides 20 kg of rice and 5 kg of wheat to below poverty line (BPL) families at Rs. 3 a kg, the government has brought down the total number of beneficiaries. Between August and October 2004 four lakh ration cards of “ineligible” beneficiaries have been cancelled, thus bringing down the numbers of BPL cardholders from 60,78,274 to less than 57 lakh. It is in such a situation that the State government reduced food subsidies to Rs.170 crores in 2003-2004 from Rs.295 crores in 2000-2001.

Many multinationals and big business houses have entered into corporate farming in Karnataka. The case of ITC swindling tobacco growers in Karnataka is well known. There is another example of Ugar Sugar Ltd. which has initiated contract farming in the Belgaum region of Karnataka. Since barley can be used as malt for alcohol processing, a highly remunerative activity, Ugar Sugar has sought to use this opportunity to grow barley through contract. The terms of contract are against the interests of the farmers. The company supplies seeds at Rs 7.50 per kg and deducts the cost of seeds from the harvest. The company buys the entire output of the farm at a low same price fixed by it arbitrarily. The company has contracted 10,000 acres under barley cultivation from around 8,000-10,000 small and marginal cultivator families. The company has already extended its operation to Bijapur. Ugar Sugar did not contract for barley during 2002-03 under the pretext of dip in barley prices in the international market only to force the formers to sell at lower prices. Since there is no local market for barley the farmers are forced to sell at any price fixed by the company. Pepsico, after swindling the farmers of Punjab through contract farming in tomato and Basmati rice, is conducting field trials for contract farming in chilli in Nelamangala in Karnataka. Multinational giant Monsanto has a research station in Karnataka and carries on contract farming with farmers for seeds production. Cargills and Monsantos thrive in Karnataka while the poor farmers are forced to commit suicide.