Has Bangalore’s 50-Year Tech Boon Become a Curse?

Last fortnight, Bangalore was flooded as the city creaked from technology and startup explosion over the past two decades.

Decades of Innovation Rich Foundation Building

Bangalore was the first city in undivided India and even Asia to get electricity. 

On the evening of August 5, 1905, electric street lights first blazed life at the flick of a switch by Sir John Hewett of the Viceroys’ Council – inspiring awe among the townsfolk when the rest of India was lit up by oil lamps. It still exists near the KR Market flyover.

The culture prevalent in the city today has been perpetuated over the years and the city has its ancestors to thank for seeding these efforts. Maharaja Krishnaraja Wodiyar IV (1884 – 1940) who was the twenty-fourth maharaja of the Kingdom of Mysore, of which Bengaluru was a part. 

The King was known for his noble and efficient kingship. In fact, at the Round Table Conference, in 1930, in London, Mysore was acknowledged as the best-administered state in the world. The King’s contribution to Bangalore is immense and long and none more so important than India’s premier Scientific research institute – the Indian Institute of Science (IISC).

The IISC was conceived by Jamsetji Tata, in the final years of the 19th century. 

An extended period of almost thirteen years elapsed from the initial conception in 1896 to the birth of the institute on May 27, 1909. The motivation for the institute was to train Indians in research and make them self-reliant. A spirit prevalent in so much of what is being built even today in Bengaluru. 

Another key figure in the development of Bengaluru into a technological hub was Sir M Visvesvaraya, popularly known as Sir MV, an engineer, statesman, and scholar. 

Sir MV served as the Diwan of Mysore from 1912 to 1918. During his service as the Diwan of Mysore, he founded eminent institutions such as Mysore Soap Factory, Bangalore Agricultural University, Parasitoid Library, State Bank of Mysore and Mysore Iron and Steel Works. Many other industries started during his tenure as the Diwan. 

Sir MV was known for his timeliness, intricate ideas and dedication. Through this time, the outlook of Mysore changed. Many industries and public sectors came up providing good opportunities to people. 

Sir MV’s contributions didn’t stop at enabling the set-up of industries. 

He recognized the need for talent to be able to serve the industries being set up. He was involved in the founding of the first Engineering College – Government Engineering College, Bangalore 1917 (currently University Visvesvaraya College of Engineering). 

He even introduced compulsory education in the State, which later was embodied as a fundamental right in the Constitution of independent India. Talk about creating an ever-lasting change.

Sir M.V.’s slogan was Industrialize or Perish, and he successfully ensured that the culture of industrialization permeated through Bengaluru and outlasted him as well. 

Up until independence, several other enterprises were established in the Mysuru province. These included – the Government Electrical Factory (later renamed Karnataka Vidhyuth Karkhane) in 1933; Mysore Lamps in 1936; Mysore Electrical Industries in 1945; and most importantly, Hindustan Aeronautics Limited, which started in 1941 as a realisation of Sir MV’s dream of having an automobile industry in Bengaluru.

It should be no surprise then that September 15, Sir MV’s birthday, is celebrated as Engineers day in his loving memory.

As India reached Independence, Bangalore’s foundations would become its strength.

Going strong with the wind

Following India’s independence in 1947, Bangalore became the capital of Mysore State. 

It remained the capital when the new Indian state of Karnataka was formed in 1956. The two urban settlements of Bangalore – city and cantonment – which had developed as independent entities, merged into a single urban centre in 1949. 

A little more than a million people lived in the city then.

They say history doesn’t repeat itself, but it rhymes. As you trace Bengaluru’s history, you will find countless instances of it being the leader in technology adoption. Bangalore was the first Indian city to introduce auto-rickshaws in 1950, another example of their tech-forward approach.

Looking to give India a much-needed industrial base post-independence, the government set up 3 PSUs in Bengaluru: the Indian Telephone Industries (ITI) in 1948, watchmaker Hindustan Machines Tools in 1953, and BEL the following year. 

The following decades saw more coming: the Indian Space Research Organisation, the Defence Research & Development Organisation, the National Aerospace Laboratory etc.

Climate, location and a fresh site were the critical drivers for the government to set up such a strong industrial base in Bengaluru. The government didn’t have to worry about land. It picked up land owned by the defence. 

Another factor was that Bengaluru was strategically located at a safe distance from the Pakistan and China borders in the north, making it attractive to launch industries critical to the country’s safety and security. 

Additionally, the prior existence of large textile mills such as Binny and Minerva and colonial institutions like the Railways and the Cantonment had created a base level of skill in the city.

Large-scale immigration to Bangalore began in the 1950s as the state invested heavily in the public sector and education. Employment opportunities were created for tens of thousands of people in southern India, and Bangalore grew to become one of the largest cities in the country. 

For several decades the city’s economic growth was mainly based on manufacturing industries.

After the initial thrust on PSUs, Bangalore’s industrialisation entered the next phase in the decadal cusp of the 1960s and ’70s. From the 1970s onwards, industrial growth shifted to the small-scale and ancillary industries that would support the large enterprises. This growth and the building of residential layouts within the city, developed inner parts of the city as well.

This boost in industrialization followed the Naxalite movement, an armed Marxist uprising in the Bengal region, a key industrial zone till then. 

As industries fleeing Bengal shifted to Bangalore, demand for manpower rose, sparking the second big influx: workers from neighbouring states like Tamil Nadu, Kerala, and Andhra Pradesh

There was also a demand more qualified personnel. 

The industrial sector, at its peak in the ’70s and ’80s, employed over 3 lakh people, a huge section of the population. Reports from research carried out by the Times Research Foundation in the 1980s found that at the peak of the industrial economy, nearly 14% of Bangalore’s population was engaged in industrial work associated with the large-scale manufacturing economy led by public sector undertakings.

Bangalore’s contemporary identity is tied to the IT revolution and the fact that firms like Infosys and Wipro first set up shop here in the 1980s. But they didn’t appear out of thin air. The city’s unique industrial economy – with a vast network of public sector undertakings – played a crucial role in precipitating that moment.

As seasons and shades changed, Bengaluru did well to continue adapting itself

East to West, Bangalore is the best!

Ram Krishna Baliga’s Electronic City helped cement Bangalore’s place as the country’s innovation hub.

Baliga came to Bangalore to do his master’s in engineering from IISc; after that, he moved to the US to work for GE. He moved back to Banglore to work for Bharat Electronics, where he was in charge of a residential development project. 

During his time in the US, he was astonished to hear about Silicon Valley, the land of semiconductors and computer chips. He envisioned Bangalore, an industrial hub at that time to be its own Silicon Valley. 

By dint of his success with BE, the then CM of Karnataka put him in charge of building India’s very first Electronic city, giving birth to India’s own Silicon Valley.

Around 1981, Infosys started its business in Pune, they were struggling to get clients, it took them three years just to get their first computer because of the import policy of our socialist government. By the time Infosys got its first client Baliga’s Electronic City was in full swing. 

Until now, most projects and companies were driven by the government and focused on the manufacturing sector. Soon, Infosys became one of India’s first IT companies to set its headquarters in Bangalore. 

Bangalore already had the talent pool, thanks to the constant investment by the government in tech PSUs and various universities and colleges, IISc was Stanford to India’s Silicon Valley.

The success of Infosys in Bangalore and the new computer and software policy of 1984 saw more and more companies setting up shops in Bangalore to access quality talent and its thriving ecosystem. 

Decade-old startup TCS was already getting clients from around the world and opened an office in Bangalore to access the skill. 

New companies like Wipro too moved to Banglore.

Global big-tech companies were saving over 50% of cost projects by outsourcing their IT operations to India. It was estimated that the cost per line of code development was one-third and for systems support service was a quarter over here as compared to the states. 

Indian IT biggies made the most of it, they were getting more and more projects, in turn hiring more engineering talent.

Texas Instrument, attracted by Bangalore’s low-cost and promising engineering talent, was the first global technology company to set up a facility in the city. The average salary of a software developers in India was less than 20% of their counterparts in the US. 

When TI brought in a satellite dish to set up a communication link with its US office, the newspaper read, “High tech Bangalore arrived on a Bullock cart”.

Once India’s economy was liberalised in 1991, domestic IT companies and international tech giants like IBM and Sun Microsystems flocked to Bangalore.  

They brought more talent and laid the foundation of Bangalore as the Silicon Valley of India. These companies started capitalizing on the immense talent pool and low operational cost by shifting the backend tasks to the city.

The transformation of Bangalore from an industrial powerhouse to an IT Hub powering the front end in developed countries.

Igniting the Startup Culture in India

From 1990 to 1996, India’s IT industry grew from $100mn to over $1bn, most of this coming from Bangalore. 

The recently liberalised economy was bringing in massive foreign investments. While India’s GDP grew at 7%, Bangalore’s GDP grew at 20%! 

Y2K  triggered a boom in the Indian IT industry, giving India recognition for its vast talent. It started to be considered suitable for R&D compared to a back-office workforce. 

The world was being Bangalore’d!

The Y2K bug was a $300bn mistake caused by short-sightedness- the inability of a computer to differentiate between the years 1900 and 2000. India was key to getting over this issue.

The dot-com bubble burst in America interestingly kept the rapid growth of the Bangalore IT industry kicking and alive. Post the crash, VC money dried up, and companies that survived focused on cost optimisation. 

To save money, they brought more jobs to India’s Silicon Valley. By 2001, the Indian IT sector grew to $8bn, growing 80x from 1991. International expansion brought tech giants like Yahoo, Google, eBay and Amazon to Bangalore.

By this time, the Indian market also started growing. People had access to computers and the internet, which gave the Indian IT companies more opportunities and started building for India. 

It was the end of Bangalore as the backend support, the outsourcing city of America, and the beginning of India as a hotbed for entrepreneurship.

This was when Bangalore’s startup ecosystem started to take shape, entrepreneurs understood the opportunity in the Indian market with increasing spending power and deepening internet penetration. 

Multiple startups started popping up in Bangalore, including Ngpay, a mobile commerce startup founded in 2003 and later acquired by Flipkart. MuSigma, India’s first unicorn, was started in 2004. In 2005, food product startup iD fresh food and edtech startup Tutorvista was founded.

Around this time, VC money started flowing into the Indian startup ecosystem. During the 2008 financial crisis, VCs were looking to take their money out of the US and found Bangalore to be the perfect opportunity for growth. 

As the money started to pour in, startups including Flipkart, InMobi, Dailyhunt, Commonfloor, Redbus, Practo and Myntra all popped up in Bangalore. 

The seeds that would ignite entrepreneurship and shape the startup DNA fabric were being sown in Bangalore.

The Big Disruption is yet to come

With big wins across R&D and IT and new industries like automobile, aviation, and Biotechnology rising, Bangalore was on the verge of a breakthrough.

From the new decade of 2010, Bangalore’s startup sprint saw no bounds. 

Unicorns like Flipkart and Ola and industry leaders like Zomato brought out new-age startups like Dunzo for Hyperlocal commerce and a rise of B2B startups in consumer services, analytics, and recruitment.

With entrepreneurs, investors and users thrilled, the government did not want to miss out on this leap of change. Karnataka’s liberalisation policies and the centre’s Digital India and Market India enhanced early-stage support for startups.

PSUs like Bharat Electronics Limited (BHEL) and Hindustan Aeronautics Limited (HAL) followed suit. Scientists, researchers, and bureaucrats from all over the country gathered in the same city, ushering in a novel exchange of information, ideas, and innovation.

Innovation can never be contained, and automobile startups and electronics giants soon witnessed increased spending and hiring. More research centres emerged with newer focus areas like IoT, healthcare, and manufacturing.

Bangalore became home to big tech firms setting up their incubator programs, Microsoft ventures, and Google Launchpad to push these Mobile and IoT startups to the forefront of innovation and cater to the increasing internet penetration.

This aggregation of startups, academic institutions, and MNCs innovating across design, tech, and services made Bangalore the place where breakthroughs were born, brought up, and scaled up for the world.

Decades of being the perfect talent magnet had kicked in a virtuous flywheel where quality talent attracted more quality. A surprising 42% of Bangalore’s population were migrants by 2013, signifying the rich diversity of cultures and talent. 

IT remained the bellwether for Bangalore. Electric city and Whitefield had become the thriving hub for IT Parks and R&D centers. But as the wave of entrepreneurship and innovation gripped countries globally, from the US to Europe, could India be far behind? 

2015 ended up being a defining year for the startup fabric of Bangalore. 

With a quarter of India’s new companies hailing from Bangalore and sector agnostic investments of $1.2B, the city was ranked 15th among the global startup ecosystems.

Driven by rampant spending, hiring, and funding, Bangalore’s startups were ticking time bombs ready to burst. 

Startups were plagued by unsustainable spending, loss-making unit economics, and no headway to achieve profitability. Growth at all costs had finally caught up, and a price was to be paid.

This was found especially acute in the food tech space, which was funded heavily.

Cost-sensitive Indian users, discounts-dependent acquisition strategies, and trickling VC money slowly tightened the noose around e-commerce startups. 

As the golden tap dried out and the bubble burst in 2016, there was a newfound respect for bootstrapped startups creating real impact by innovating product experiences and expense management to sail through all seasons of funding.

Get me all the Unicorns!

In 2016, Bangalore and Mumbai were competing to be the Valley of India.

Mumbai seemed to have a good shot at winning, with a rich ecosystem built around IIT Bombay. Heady successes of Ola, were trimmed by the failures of Housing and TinyOwl. Bangalore’s new kids on the block proved far more resilient. 

A combination of great talent, capital and technology eventually helped Bangalore leapfrog into number one.

From 1 unicorn in 2016, Bangalore ended up having 41 by 2022. It is the largest and sits far away from the other pretenders to the throne.

Of the 104 unicorns in India as of mid-2022, more than 40% are in Bangalore, while the city is home to more than 3,800 startups, with Mumbai emerging as a competitor close to the crown, but Bangalore has held its position and was awarded world’s most dynamic city crowned by WEF in 2017/2019

Bangalore is not only home to the highest number of startups, but also home to the highest quality startups. 60% of the total startup funding each year can be attributed to Bangalore alone. 

Another testament to this is the staggering return that the startups from the city have given to their investors. 

We analyzed the data for 100+ unicorns in India and look at a city-wise breakup of some of the stats shown by Bangalore. It further validates the potential that the city has and continues to demonstrate. 

Startups coming out of Bangalore have generated the highest absolute return for the investors that entered the unicorn rounds, beating all the other cities by a wide margin.

The median on the same data ranks Bangalore second only to Delhi NCR, further showing the consistency of performance for the return.  

Startups are just a subset of the overall IT industry. 

If we zoom out and look at how Bangalore has contributed to the development and acceleration of the IT industry, not only for the state but for the country, it’s mind-boggling.

Flashy cars with no place to drive!

It is no secret that India is great breeding and culturing ground for IT talent. 

India’s IT & communication sector has grown meteorically and currently employs 10m people, which is ~20% of the global population in this space. 

Put it differently, every 1 in 5 people in this industry is from India. Bangalore has been a powerhouse in making the above statement a reality. 

The fact that Bangalore contributes to ~40% of the total IT exports from India annually, is a testament to the potential that Bangalore’s production machine has.

Numerous economic indicators reinstate Bangalore’s dominance and cement its name as the Silicon Valley of India. A per capita income of INR 3.2 lakhs (2.4x the national average), lion’s share of IT companies with  67,000 IT services companies ( 40% of all the IT services companies in the country) amongst others. 

Bangalore is also one of the highest tax-paying cities in India. Its tax collection for FY 21 was at INR 75,000 Cr. It is one of the only cities that showed a growth in tax collections amidst the pandemic.  

Assuming a similar range of taxes collected this year, and the budget allocated across various sectors, it is apparent that the cost to run the city, maintain it, and bring new projects to the ground every year is surpassing the revenue collections, resulting in a deficit.

What is not apparent is the fact that how much of the allocated costs in each sector is dedicated to just maintaining the often glorified newer projects. 

The city had expenses of 83,000 Cr, signalling a deficit of 8,000 Cr. Despite spending so much, roads and infrastructure accounted for 224Cr or less than 0.3% of the expenses.

The effect had to show someday finally, and it did with full fury and force.

Once a natural beauty, now a crumbling pie

Recent floods and infrastructure breakdowns in Bangalore were an eye-opener.

It is turning into a do-or-die situation with many other issues starkly upsetting the civic infrastructure of the city, impacting critical day-to-day operations, disrupting traffic and crucial new projects like metro projects. 

There could be multiple factors that brought the city to its knees, but what is yet to be seen is whether there are specific budget allocations dedicated toward infrastructure. 

It is not just the birth of new cities that questions Bangalore’s future, but Bangalore’s present. Plagued by acute water shortage, unbearable traffic, and unpredictable population growth, Bangalore is by no means a smart city. 

The exodus from neighbouring villages and the accompanying exponential growth have proven too much to handle. A study by the IISc states the city may not be fit for a human being to live in the next few years if the population continues to grow at the current rate.

With no perennial water source nearby, inhabitation in Bangalore was possible because of lakes. With piped water, rapid urbanization and ensuing pollution, most lakes have disappeared. Those that remain are polluted because of frothing, are highly acidic and have even caught fire.

Reducing vegetation and increasing urban area have caused the megacity to lose its cool, with temperatures rising by 42%. Once worn as a badge of honour by Bangalore’s citizens, the weather has made ACs mandatory everywhere.

A naturally arid region, Bangalore is further tormented by groundwater depletion, faltering water supply infrastructure, and a history of governance solving the symptoms but not the cause. Ironically, the worst hit places are the newly-developed IT hubs, the most visible parts of the city.

With a 6000% increase in vehicles since 1990 and no efficient public transport to the rescue, Bangalore’s infamous traffic crisis has become a real challenge, affecting the productivity of millions. 

Funny memes abide, but the situation continues to be extremely grim.

A subsequent rise in pollution, making Bangalore the country’s second most heavily polluted city, proves that Garden city is now becoming a Smog City.

One would need to treat Bangalore as a company to see the effectiveness of its infrastructure.

There will be pressure to bridge the deficit by more tax collections but what remains to be seen is do we have a measuring framework for the efficacy of the spending of this company called Bangalore. 

It would be a plausible solution with just the will and immense talent in the company.

Hope is a great thing, and no good thing ever dies!

Bangalore has undergone a transformation from industries to the internet to innovation through startups

This evolution has created a sprawling metropolis, the largest in South India. But as all companies have to contend with competition, Bangalore has to as well

Recent incidents have increased the population’s inclination to jump to other upcoming cities in India, including Hyderabad, Indore, Pune, and Nagpur which offer humble conditions and comfortable lifestyles to nurture a professional career. 

There is a significant gap in salaries of engineers employed in Bangalore v/s other cities, but the upcoming cities offering more for less present a shinier option. 

The option of working remotely in the cloud will also reduce the attraction of moving to a city with incredible traffic and breaking infrastructure while providing similar salaries

Another major factor is that the new bubbling cities are geographically spread across numerous tier 2 cities where a large population of the IT industry is from. Staying close to home and, in parallel getting an option to develop corporate careers is a boon to many.

As the startup ecosystem slows down, people have begun to question the need for moving to Bangalore. The city’s unmatched vibe, talent pool and creativity remain its strengths. 

It’s easier for citizens to forgive a city because moving out is a high-friction activity. Bangalore will have to capitalize on its decades of technological evolution to keep its pole position.

Bangalore has for almost 50 years evolved and been at the forefront of all things technology. Aided by Western capital and talent, it is now becoming a beacon for this region. 

Its key strength is its openness, attraction for talent and culture. Its gaping weakness is its infrastructure. 

With a flatter world where geography has become less critical, Bangalore will have to upgrade its physical infrastructure to win. It has demonstrated it can do so for decades.

Technology will need to come to its rescue as it stands at crossroads, with a stressed city still able to dream big.

Writing: Keshav, Saniya, Sahil, Tanish, Varun and Aviral Design: Abhinav, Blair and Omkar