Overview of Karnataka IT sector:
Karnataka is one of the most progressive and industrialized states in the country. The state has an
illustrious history of successfully introducing several industrial and technological initiatives.
Today Karnataka is driving domestic growth and creating wealth through a potent mix of
resource based, skill based, technology based and knowledge based products and services. A
proactive Government, investor friendly policies, excellent human resource, good infrastructure
and a very congenial industrial climate have been Karnatakas USPs.
Global hub: Karnataka is the leading IT hub of the country with Bangalore as the 4th largest
technological cluster in the world after Silicon Valley, Boston and London
Leading State in the IT industry in India
With a third of Indias software technology park units, the state is the countrys largest software
technology hub. 80% of global IT companies have based their India operations and R&D centers
in Bangalore. Bangalore has the highest number of R&D centers in India. Karnataka has a
presence of 47 IT/ITeS SEZs; 3 software technology parks with 2,160 units, almost all the
leading IT companies in the world, including Infosys, Wipro, Tata Consultancy Services, Oracle,
Dell, IBM, Microsoft, Accenture, Cognizant, etc. Karnataka is Indias largest software exporter.
50% of worlds SEI CMM Level 5 certified companies located in Bengaluru.
Karnataka is home to more than 80 Fortune 500 Companies and over 700 Multinationals. It has
been consistently rated as one of the best places to do business by organizations like World Bank,
FICCI, ASSOCHAM and so forth.
In the last decade, Karnataka has emerged as a key State in India with setting up of knowledge
based industries such as IT, biotechnology and engineering. The State leads in electronics,
computer software, and biotechnology exports. It has also come to be known as the Science
Capital of India, with over 100 Research & Development (R&D) Centres, and a preferred
destination for multinational companies (MNCs) with more than 650 such companies already
located in Karnataka. Karnatakas capital Bengaluru is known as the Silicon Valley of India and
is ranked among the top four technology clusters of the world.
The State was created on 1st of November, 1956. It covers an area of 191,791 sq.km., which is
5.8 per cent of the total geographical area of India, making it the eighth largest State in India in
area terms. It has a total population of 61 million persons, which is 5.1 per cent of Indias total
population. The State is divided into 30 districts, which are further divided into 175 sub-districts
and 29,406 villages. Kannada is the most widely spoken and official language of the State. As of
2011, the State has achieved the literacy rate of 75.6 per cent, which is slightly higher than the
All-India average of 74 per cent.
As of 2011-12, the State had a Gross State Domestic Product (GSDP) of Rs. 298 thousand crore
at constant prices and the per capita income was Rs. 69,493 per person per annum. Services
sector made the biggest contribution to GSDP at 54 per cent, followed by 28 per cent in industry
and 17 per cent in agriculture. However, in terms of worker distribution1, agriculture employs
the majority of the population at 55 per cent as cultivators (29 per cent) and agricultural
labourers (26 per cent). The four per cent are workers in household industry, and remaining 40
per cent are other workers2.
Education and skill up-gradation has become the corner stones of Government Policy in
Karnataka. The State Government is providing thrust on vocational training. It has opened 289
polytechnic institutes throughout the State, in addition to setting up of 1,507 Industrial Training
Institutes (ITIs). Assistance is also provided to private players for setting up training institutes
within the State.
In 2008, the State Government set up the State Skill Commission with a mission at empowering
all individuals through improved skills and knowledge. The Government has also set up a
Knowledge Commission (Karnataka Jnana Aayoga) within the State on the lines of the National
Knowledge Commission. In addition, Karnataka Vocational Training and Skills Development
Corporation (KVTSDC) has also been set up for furthering the agenda of skill development in
the State.
Given the above background and the growing importance of skill development in the knowledge
based State of Karnataka, the National Skill Development Corporation (NSDC) mandated ICRA
Management Consulting Services (IMaCS) to conduct the district wise skill gap study for the
State of Karnataka.
Karnatakas IT industry: driving national and state economic growth
Karnataka State leads national IT industry with its software exports constituting 40% of Indias
trade.
1.Spearheading states growth: Karnatakas electronic, computer software, and BT exports
composed 63.5% of states exports in 2009-10
*Software exports contributed 21.4% to states GSDP with export CAGR of 13.5% and GSDP
CAGR of 15.2% between FY05 - FY10
*BPO/ITeS companies grew to 270 in number by CAGR of 13.4% in FY2005 -FY 2008, while
hardware exports grew to US$ 825-million at CAGR of 14.4%
*Strong local investor confidence: State attracted the most investments in the national IT
industry, with thrust from Indian companies
CAGR of 5.84% in companies, 13.5% in exports drive states IT industry
Graph P.No 3(1)
Source: Economic Survey of Karnataka, 2010-11
2.Global leadership: Out of 87 Software Engineer Institute Capability Maturity Model (CMM)
Level-5 IT Companies in the world, 32 are located in Bangalore
*Bangalores native IT companies, Infosys and Wipro, have 2nd and 3rd highest market cap
amongst all Indian companies, and are ranked in The Forbes Global 2000 list
*Highest ranking global IT companies have based their India operations and R&D centers in
Bangalore :
States IT sector attracted 44.6% of total investments in national IT industry
Source: Economic Survey of Karnataka, 2010-11
3.Innovation and R&D: With the highest number of R&D centers in the country (103), leading
global IT companies maintain their R&D centers in Bangalore, including Microsoft, Intel,
Oracle, and IBM
4.Human Resource hub: State contributes 500,000 IT professionals from leading engineering
institutes to the nations IT workforce of 2.5-million
Karnataka earned Futuregov Award 2010 for Best Business Practices in Asias Public Sector :
e-Procurement platform valued projects of US$ 9,792-billion by 2011, and extended to 96
government departments, encouraged 10% higher bidder participation
Key players: global and domestic leaders
Organization
Industry focus
Tata Consultancy Services
IT and business process outsourcing
Revenues of US$ 7.4-billion in 2010-11
IT consulting services in banking, financial
services, healthcare and life sciences,
insurance,
manufacturing,
media,
entertainment, transportation, travel and
hospitality, retail, utility, and energy resources
Infosys
IT consulting, modular global sourcing,
process re-engineering and BPO services
Revenues of US$ 5.8-billion in 2010-11
Wipro Technologies
Revenues of US$ 5.6-billion in 2010-11
54 development centers, 30 global offices
IBM
India revenues of US$ 3-billion in 2009-10
Product engineering, technology infrastructure,
BPO and other consulting solutions. IT
services include application development,
deployment and maintenance, business
intelligence,
and
customer-relationship
management
End-to-end solutions to customers from
hardware to software, services and IT
consulting
Hewlett Packard
developing and manufacturing computing, data
storage, and networking hardware, designing
India revenues of US$ 3.4-billion in 2008-09 software and delivering services, along with
leading consulting services in business process
improvement
Accenture India
BPO services, business consulting, systems
integration
Cisco
Core technologies: routers, switches, LANs
Advanced
technologies:
WLAN,
security
systems, enterprise telephony
Intel
Chip design and manufacturing
Texas Instruments
Semiconductor design, including analog,
digital signal processing, wireless, and DLP
technologies
Mindtree Limited
IT solutions, specializing in IT services,
independent testing, infrastructure management
and technical support, knowledge services and
product engineering.
Microsoft
Develop technology for emerging markets, and
provides high level technical resolution
services.
Google
Technical
innovation,
Mobile
Web
Applications, Geo Products, Enterprise Cloud
Computing
Infrastructure: 81% of the total SEZ in Karnataka focused on IT
With investments of US4 1,271.45-million, 47 of the 58 Special Economic Zones approved in
the state will drive the IT/ITeS sector
Status of SEZs
Districts
Operational
Bangalore - 13, Dakshin Kannada - 2, Mysore 1
Notified
Bangalore - 5, Mysore - 2, Mangalore - 2, Hassan - 1, Shimoga 1,
Dakshin Kannada 1
Formally
approved
Bangalore - 12, Srirangapatna - 2, Mysore - 1, Mangalore 1, Hubli 1
Software Technology Parks of India
Investments in 2160 STPI units totaled US$ 78-million by 2009-10
Mysore: 56 STPI registered companies recorded export of US$ 289-million in 2008-09,
growing by 250% since 2004-05
Mangalore: 29 STPIs exported US$ 181-millioin in 2008-09
Hubli: 16 STPIs exported US$ 5.2-million in 2009-09
Additional Investments
Hardware units: Investments of US$237-million
Foreign equity companies and BPOs: Investments of US$132-million
Information Technology Investment Region (ITIR)
Developed as joint initiative of central and state governments near Bangalore International
Airport.
Total expected investments by 2030 US $ 20-billion
Projected Employment 255,000 (Direct) and 857,000 (Indirect)
Electronic City, Bangalore
One of Indias largest electronic industrial parks spread over 332 acres
Houses more than 300 companies, including Wipro, Infosys, HP, etc
Employs more than 100,000 employees.
EPIP Whitefield
Integrated township developed post-2005 with three IT/ITeS SEZs
Houses nearly 25 villas and gated communities worth over US$ 416,000
Export Promotion Industrial Park amogst countrys first IT parks
IT Industrial Parks developed in PPP mode
All IT Parks equipped with power, water, high speed connectivity
US$ 5-million park in Shimoga will have 100,000 sq. ft. IT workspace
US$ 5-million park in Gulbarga will have 150,000 sq. ft. IT workspace
US$ 10-million parks in Mysore & Mangalore will have 40% area for IT
Plethora of policies: encouraging an investor-friendly environment
Karnataka Animation, Visual Effects, Gaming and Comics Policy 2012
Infrastructure: Land earmarked for AVGC in ITIR near Bangalore; AVGC public and
private parks in areas where facilities and land available
Venture Capital fund: US$ 11-million for new entrants in AVGC
Centre of Excellence: Established on Public Private Partnership (PPP) Mode at cost of
US$17million in Bangalore, with financial assistance from GoK towards capital expenditure and
equipment
Karnataka Information and Communications Technology Policy, 2011
Research Hub: In Bangalore, along with a prototype and testing laboratory with State
funding limited to 50% of the total cost of setting-up the necessary infrastructure
IT Investment Region: Provision of excellent infrastructure and investor-friendly policy
environment in min 10,000 acre area; managed and administered under Karnataka ITIR Act 2010
Buy Local program: Karnataka-based Defense, Nuclear energy, satellite programs and
Public sector enterprises and state departments to source from local IT/BPO/Telecom companies
Karnataka Semiconductor Policy 2010
Investment promotion subsidies to encourage establishment of semiconductor units in Tier-II
cities
Additional US$ 5.2-million to KITVEN IT fund for assisting semiconductor start-up units in
design and embedded software
ATMP units will receive special incentives in proposed ITIR near BIAL, Bangalore, while
Solar PV manufacturing units will receive assistance under Karnataka Renewable Energy Policy
Karnataka Fund For Semi Conductor Excellence to enable private companies to cover 50%
of R&D expenses
Karnataka New Industrial Policy, 2009-14
Electronics, Telecom and Informatics (Software) industries set-up in Mysore and Dharwad
eligible for 100% sales tax exemption for 6 years
Sector-specifc industrial zones and SEZs that match natural resources and capabilities of a
region with industry requirements
Land bank created by Karnataka Industries Development Board to facilitate land acquisition
for investors
Infrastructure development through investments in power, roads, water, warehouse, and
logistic facilities
State policy for SEZ
Single Point clearance to SEZ developers and units
A committee to monitor and review implementation of SEZ
Exemption from stamp duty, electricity duty
Exemption from state local taxes, sales tax, VAT, Entry tax, Special Entry Tax
Declaring SEZ as industrial townships enabling SEZ as self governing and autonomous
municipal bodies
Karnataka Millennium BPO Policy, 2002
Fiscal incentives to BPOs exempt them from entry tax on capital goods, stamp duty and
registration, and proffer waivers from land conversion fees
Simplified procedures exempt BPOs from labor law requirements, facilitate proposals through
single-window agency, and relax procedural requirements
Karnataka Millennium IT Policy, 2000
Fiscal incentives for IT companies include exemption from entry tax on certain capital goods,
concessions on stamp duty and registration charges, rebates on costs of land
Continuous and uninterrupted supply of power at industrial rates
Simplified procedures and laws: pollution control clearances, urban planning, zonal
regulations, relaxation in labor laws and facilitation of proposals through single-window
agencies
Venture capital funding to start-ups from government
Establishment of IT parks, Electronic City, Export Promotion Industrial Park, Software
Technology Park
Karnatakas value proposition to investors in IT sector
Karnataka is an ideal base for investors in the Information Technology sector
With the 4th largest technological clusters in the world, and a third of Indias software
technology parks, Karnataka, Indias largest software exporter, offers growth opportunities to
investors across the entire spectrum of the Information Technology sector
The existing strong base of industries ensures that investors compete at the edge of leading,
cutting-edge technology, and also have vast opportunities for integration across a strong supply
chain. Leading investors include Infosys, Wipro, Mindtree, and TCS.
Leading global IT companies maintain their R&D centers in Bangalore, including Microsoft,
Intel, Oracle, and IBM
Investors can avail of the extensive, trained human resources in the State to drive industrial
growth
Premier institutes include: Indian Institute of Science, Visvesaraya Technological University
and Indian Institute of Information Technology
State contributes 500,000 IT professionals from leading engineering institutes to the nations IT
workforce of 2.5-million
Investors can avail of the extensive, supportive industrial infrastructure that the State has
already created to drive industrial growth
81% of the states Special Economic Zones are focused on Information Technology
Electronic City, Bangalore is one of Indias largest electronic industrial parks, housing over
300 companies and employing over 100,000 people
Information Technology Investment Region: 10,000-acre dedicated industrial zone for IT
industries expected to attract investments of US$20billion by 2030 and employment of over
1million
Information Technology Park Limited (ITPL) Whitefield: joint venture between Government
of India and Government of Singapore opened in 1998. Spread over 28 hectares, ITPB is a selfcontained city that integrates office, retail, residential and recreational facilities with its own heat
and power plant. 24,000 professionals work for more than 145 companies in IT/ITeS,
bioinformatics, software development, telecommunications, electronic, and other hi-tech
industries
Proactive government policies with attractive fiscal incentives encourage an investor-friendly
environment
Karnataka launched the countrys first Animation, Visual Effects, Gaming, and Comics Policy
in March 2012, earmarking land for AVGC in ITIR, and offering a venture capital fund of
US$11million to new entrants in the States AVGC and IT sectors
Under the State Semiconductor Policy 2010, the State increased its KITVEN IT fund to assist
entrepreneurs in the semiconductor sector, while the Karnataka Fund for Semi Conductor
Excellence enabled private companies to cover 50% of their R&D expenses
Industry
Karnataka has been spearheading the growth of Indian industry, particularly in high-technology
industries in the areas of electrical and electronics, information and communication technology
(ICT ) , biotechnology and more recently even nanotechnology. The State is a manufacturing hub
for some of the largest public sector industries such as Hindustan Aeronautics Limited (HAL),
Bharat Heavy Electricals Limited (BHEL), Bharat Earth Movers Limited (BEML), etc. The State
is home to some of the biggest organizations of the world, mainly concentrated in Bengaluru,
Mangalore and Mysore. Other centers like Hubli-Dharwad, Belagavi, Gulbarga, Ramanagara are
also attracting big companies.
Bangalore Urban, Bangalore Rural, Mysore, Tumkur and Dakshin Kannada account for 70 per
cent of large and medium scale industrial units in the State. Belgaum, Bellary, Koppal, Baegalkot
and Dharwad account for 20 per cent of the same.
According to Annual Survey of Industries (ASI), the State has about 9,000 factories. Karnataka
accounted for 5.38 per cent of the total registered factories in the country in 2009-10. As of
December 2011, the State had 810 large and medium scale industrial units. These has invested
Rs.91,127 crore in the State. In addition, there were 413,284 Small Scale Industrial (SSI) Units,
which had invested Rs. 12,398 crore.
Karnataka Udyog Mitra (KUM) is a single contact point for all investors who intend to set up
enterprises/business in Karnataka. The State Level Single Window Clearance Committee
(SLSWCC3) has cleared 5,661 projects totalling Rs. 84,652 crore between 1988-89 and 2012-13
(up to 72nd SLSWCC meeting). Of these, 1,396 projects have been implemented, totalling
investment of Rs. 20,130 crore. Of the total projects implemented, 50 per cent of the investment
is concentrated in five sectors alone, namely engineering, software technology park, food
processing, software and hardware and power projects.
Industrial Infrastructure:
58 Special Economic Zones provide Duty-free Enclave for driving FDI and Exports. There are
some policy incentives and facilities offered to units in SEZs. They are
Duty free import/domestic procurement of goods
100% Income Tax exemption on Export Income for SEZ units for first 5 years, 50% for
next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
Tax exemptions: minimum alternate tax, Central Sales Tax, Service Tax, State Sales Tax
and other State Government Levies.
External commercial borrowing by SEZ units upto US$ 500 million(Rs. 5,400 crores) in
a year without any maturity restriction through recognized channels.
Single Window Clearance for Central and State level approvals.
