The State of Business 2013

A marshy tale

Lack of adequately experienced talent and cramped facilities are pushing companies away from Salt Lake City

At first glance, Sector V (five) in Salt Lake, the hub of Kolkata’s IT and ITES industry, comes across as a beehive of activity. Men and women from nearby offices crowd around hawkers lining its narrow streets. They’re out for lunch, tea, or just a short break from work. Cars and buses honk incessantly, somehow squeezing past those walking on the streets. Large office complexes of IT giants like TCS, Wipro and Cognizant jostle for space in buildings with imposing glass facades. At almost every turn, construction is on in semi-finished buildings, and there hardly appears to be any free space left to build upon. 

A closer look, though, tells a different story. Many of the posh building complexes have just a few floors occupied. “About 65% of office space in Sector V and New Town (an adjacent upcoming business and residential area three times the size of Salt Lake) is lying empty,” says Umesh Parekh, MD, Shree Ganesh Jewellery House. He runs a 30,000 sq ft export oriented jewellery manufacturing unit out of the West Bengal Industrial Development Corporation (WBIDC) promoted Manikanchan, a gem and jewellery SEZ in Salt Lake. Apart from the jewellery units, Salt Lake is home to an IT cluster that accounts for a majority of IT and ITES companies in Kolkata and the whole of West Bengal. 

Many believe that while the IT and ITES business has grown since 2000 when West Bengal announced its state IT policy and actively began wooing IT companies, it has missed the bus and lags far behind cities like Chennai, Bengaluru and Pune when it comes to being the destination of choice. “While companies like Wipro, TCS, IBM and Capgemini have come to the state, their operations here are not among their biggest in the country. Many IT and ITES companies do not think of Kolkata when they plan to set up new offices,” says Abhishek Rungta, founder and CEO, Indus Net Technologies, which makes software products for digital marketing, mobile applications and enterprise management clients across the globe. The company clocked ₹27 crore in sales last year and expects the figure to rise to ₹32 crore this fiscal.

Exports form over 95% of total IT revenues for the state, most of it coming from Salt Lake’s leading occupants like TCS, Wipro and Cognizant who operate BPOs from here. IT exports from the cluster stood at $1.5 billion in 2011-12, an increase of 10% over last year and are expected to be in the 8-9% range this year. Karnataka’s software exports grew from $16.5 billion in FY11 to $24.5 billion in FY12. India’s overall earnings from IT in the same period were $101 billion, with exports accounting for 67%.  

Black Spots

Bidhannagar, better known as Salt Lake, was originally a marshy low-lying saucer shaped area used for fishing. By the mid-sixties, after seven years of being filled with silt dredged from the Hooghly river, it took its current shape. Apart from the big players, who came to the state around 2004-2005 owing to aggressive wooing by the then state government, small and medium export-oriented IT companies have been shifting to Sector V since the late 1990s, thanks to tax exemptions and single window clearances under Kolkata’s Software Technology Parks of India (STPI) scheme. The scheme’s tax benefits ended on March 31, 2011.  

By early 2000, Salt Lake also offered uninterrupted power supply, unlike anywhere else in Kolkata as well as internet bandwidth crucial for setting up IT and ITES industry. Also, as traditional business districts like Park Street and Dalhousie in Kolkata became overcrowded and expensive with rentals in the ₹120-150 per sq ft range, Salt Lake emerged as one of the few places in Kolkata that could offer large office spaces at much lower rentals of ₹50-60 per sq ft. Owing to these factors, 500 IT and ITES companies operate out of the area now with 80% being based out of Sector V. 

Now, with space running out, adjoining areas like New Town (formerly known as Rajarhat) and Bantala are being developed as future IT hubs. “Coming to Salt Lake is very difficult as the approach roads are choked in the morning and evening. Also, parking is a nightmare with few planned parking spaces,” says Vipul Gupta, who works with Spanco BPO in Salt Lake. Already, companies like Limtex Infotech, a ₹20 crore BPO that employs almost 750 people, are shifting to buildings like the Ambuja Ecospace in Rajarhat. “Traffic congestion in Salt Lake is an everyday reality. There is encroachment by hawkers on the roads. There are no public amenities like proper bus and taxi stands, low-cost hygienic food outlets, and more needs to be done to ensure safety,” says Avinash Vasa, executive director, Limtex Infotech. 

Yet, others like Sushil Mohta, director, South City Projects and MD, Merlin Group that has buildings in Sector V, say the state Urban Development Department and Webel — the nodal agency for IT and ITES investors in West Bengal — exercise unnecessary controls in transferring land holding rights in Salt Lake. “These act as a hindrance to many business groups or entities that are willing to set up their operations in Salt Lake,” he says. 

Infrastructure-wise, the biggest gripe, more than traffic, remains poor flight connectivity both within and outside India. “There are only two international airlines, Singapore Airlines and Emirates, operating out of Kolkata. It is very difficult for us to send our parcels. It is a logistical nightmare for us,” says Shree Ganesh’s Parekh. Amit Malik, eastern and Saarc region head for Cisco, agrees. “For meeting clients or even flying them in for product demonstrations is difficult as there are no direct flights available. All this takes away from the ease of doing business.”  

Missing talent

One of the greater problems plaguing small, medium and large sized companies working out of Kolkata is talent, especially when it comes to highly specialised skills and general management. Atul Gupta, CEO of the ₹2.5 crore (revenues) Insync, which makes complementary software products for SAP 1 module, says hiring laterally and for a specific skill is most difficult for him in Kolkata. Partha Chattopadhyay, MD, Praxis Softek Solutions started his company in 2002 after returning to India in 1999,  having spent over a decade with EDS in the US. He says it is very difficult to find engineers with 7-8 years of experience. “In places like Chennai and Bengaluru, this is not a problem at all. This is also why you hear of more startups and small companies making it big from these cities,” he says. Gupta adds that for the same reason, Kolkata does not have a well-developed private equity and other funding ecosystem. “It’s a chicken and egg situation. They won’t come here because they do not find enough opportunities to fund, and small startups like us cannot grow because we can find only a few investors,” he says.

Suparno Moitra, advisor on West Bengal’s IT advisory committee, says that it’s only possible to find people with work experience between zero and five years, and above 20 years experience in Kolkata, as they gain experience and leave for greener pastures or want to come back for retirement. “You can only grow up to a certain level in Kolkata as the opportunities are limited. Even the big IT service companies have a smaller scale of operations and there are no big product companies here. So one has to move out after gaining experience. Even pay levels are better in other cities,” says Aditi Halder a student of Institute of Engineering and Management at Salt Lake. 

Rungta of Indus Next says that he finds it increasingly difficult to grow his business for similar reasons. “After a point, you need to have a good second rung in place to build and manage processes and execute ideas. Such people are simply not there in Kolkata. So we find ourselves stuck after a certain level of growth,” he says. In fiscal 2014, Rungta plans to open more offices in Chennai and Bengaluru to avail of the talent there. “We will still be based in Kolkata but our operations will need to become pan India if we have to grow bigger,” he says. 

Viresh Oberoi, CEO and MD of Mjunction, a Tata Steel and SAIL joint venture that has built online marketplaces for coal and steel and is now venturing into other verticals like auto, finance and IT, agrees with Rungta. He says that Mjunction has grown too big for Kolkata necessitating a move out to Delhi, Mumbai and Bengaluru. “It is very difficult to get senior managers to come here and work for us. Many times people accept and don’t join. Kolkata is perceived to be a place not meant for fast growing corporate executives.” 

Yet others feel that Kolkata lacks the culture of entrepreneurship. Indus Net’s Rungta says that till very recently Kolkata’s people considered business a crime and businessmen criminals. “Naturally, people from business families were among the few who had the courage to start something on their own and face the social and economic consequences.” He says that even now, people do not want to work for small companies. “I have graduates coming to me saying they love what we do but their in-laws say they wouldn’t like to marry their daughter to them unless they worked for a TCS or Wipro.” 

Things are beginning to change slowly, though. Debdas Sen, eastern region head and partner at PricewaterhouseCoopers India, which runs a 3,200 people strong back-end and consulting operation from Kolkata for its domestic and international clients, feels the culture of working hard is gradually taking root in the city. Attrition at PwC Kolkata is healthy, and availability of professionals like CAs is plentiful. “There is a culture of education here and that works well for companies like ours,” he says. Employee costs are marginally lower too, giving smaller companies like Limtex an edge over bigger competitors. Limtex beat one of the global top five firms to win an IT service contract for US-based iYogi last year. “We offered them services at $6.5 as opposed to the bigger company’s $10 per man hour,” says Vasa. This success has opened doors for him and he is now being invited to pitches at companies like HP and Dell, till now reserved for a select few IT majors. 

Yet others like Cisco are increasing their presence in the region. Malik says Cisco’s revenues in West Bengal have grown 15-fold over the past eight years, riding on the education and government segments and with the state’s e-governance projects gathering pace. “Industry has been a laggard in adopting technology but it is now waking up to the potential of using cloud-based services, virtual offices and the like,” he says. 

Overwhelmingly, the problems of Salt Lake and the companies in Kolkata and rest of the West Bengal remain that of perception. Companies continue to associate the state with a difficult work environment and stay away. There is also a need to market the changes well. “Key influencers in many of the early IT companies that shifted their operations to Bengaluru or Hyderabad came from those regions. Kolkata has no champion for itself to attract industries here,” points out Chattopadhyay.