What Bangalore is, and Hyderabad wants to be to software, Pondicherry is to hardware. Here's why it will stay that way.

By Nitya Varadarajan

Three hundred and ten kilometres from the software capital of India and, arguably, of Asia, Bangalore lies a quiet seaside territory that doesn't often figure in mainstream business media. This is Pondicherry, and circa 2001, it is evident that it is to hardware what Bangalore is to software.

To residents of neighbouring Tamil Nadu, which has traditionally vacillated on the issue of prohibition, Pondicherry is best-known as as the locale of several Dionysian haunts and the keeper of a culture that is characteristically Tamil in nature with one major difference-it isn't squeamish about liquor. To the spiritually inclined, the 492 square kilometre Union Territory is the 'sacred' place where Aurobindo, a Bengali civil servant turned nationalist movement leader retired in 1914 and lived out the rest of his life. It is also the location of the Aurobindo Ashram and the architecturally stunning Matri Mandir or Mother's Temple. To those interested in such matters, the UT is one of the few places in India that boasts an international commune, Auroville; probably the only place in the country where one can get, without much effort, a gourmet-quality gumbo; and certainly the one region in India where one can get away with speaking just French-Pondicherry was under French occupation till 1954 and the city's gendarmes (that's what they're still called) still sport the peaked caps you can only see in old French motion-pics. But this isn't a tourist guide, so none of the facts mentioned above, other than the Ashram and Auroville are relevant to Pondicherry's standing as the hardware capital of India.

Hyperbole?

Not quite.

HCL Infosystems and HCL Peripherals?

There in Pondicherry and the former is now considering an additional unit in the UT.

Wipro and Accel icim?

Yes.

IBM?

Yes.

Acer?

Yes.

Hewlett-Packard?

Yes.

Proview and Samtel?

Yes.

And while LG Electronics and Sharon Global (a Singapore-based smart card major) have decided on the location of their manufacturing facilities in India- Pondicherry, where else?-ATM manufacturer NCR Corporation is reported to be setting up ops in the UT too.

The Hardware History of Pondicherry

Pondicherry was always known for its thriving SME-(small and medium enterprise) driven hardware industry. ''The place's association with computers goes as far back as 1970,'' says Lata M. Iyer, a former Gartner analyst who's been associated with the UT and some hardware companies located there for the past four years. It was the school attached to the Aurobindo Ashram that set things off by starting computer classes in 1970. The first computers were donated, and the first instructors were some American techies who'd ended up at Auroville.

The year 1980 saw the creation of the Aurolec Foundation, an independent trust that was given the mandate to manufacture computers. There weren't too many companies making computers in India then, and Aurolec achieved a modicum of success. But when Auroville came under the management of the Central Government in 1988, things changed.

For the record, Auroville was founded as an 'international cultural township' by the Mother, a French woman called Mirra Alfassa who became the Ashram's driving force after Aurobindo, in 1968. By 1980, managing a township had become a bone of contention between several entities and under the Auroville (Emergency Provisions) Act of 1980 it was vested with the Central Government. By 1988, things had improved so much that it was decided to make this permanent. That involved the transfer of all undertakings of the township and the trusts it had set up to the Centre. Aurolec's founders demurred, broke away from Auroville, and set up shop as Nexus. Then began a protracted legal battle that went badly for both brands, but that's another story.

Another famous computer brand of the 1980s and 1990s, Pragati, has its origins in Pondicherry. The company, Pragati Computers, was founded by a Frenchman in 1982; by 1995, Pragati had established itself as a serious player in the desktop and networking arena, and the Frenchman sold the company to a Chennai-based group. A futile diversification into high-end servers followed and the brand lost its focus (and sheen), but it continues to linger on.

All this history meant Pondicherry was an ideal place for hardware manufacturers to set up base: there was trained manpower to be had and there was no sales tax compared to 4 per cent in most states. Company followed company, and much in the same way Fairchild Semiconductor created Silicon Valley, Aurolec seems to have made Pondicherry a hardware hothouse (with a little help from tax laws). According to the Pondicherry Government's Directorate of Industries and Commerce there were, at last count (in 2001) 60 small-scale, six medium-scale, and two large-scale industries, employing 1,920 people and with a production turnover of Rs 2810.54 crore engaged in the manufacture of it hardware in the UT. ''We have an edge today because of the sales-tax benefit,'' says C. Ravishankar, President and CEO, Pragati Computers.

Competitive Advantages, and Disadvantages

Will Pondicherry's reign as hardware capital of India end, then, once a uniform value added tax is levied across the country from March 2002? After all, a lower sales tax was one of the things that tiled the balance in favour of hardware investments in the UT. ''Pondicherry brought us in on account of sales tax,'' admits monitor-maker Samtel's business head Alok Dutta. And as Acer's General Manager Arun Bhagat explains, ''the industry is so competitive that it is imperative to derive cost benefits from manufacturing.'' Acer is watching developments on the vat issue closely and its decision to up the capacity in its unit from 3,500 units a month to 10,000 depends as much on this as it does on the state of the market.

There's more going for Pondicherry, though, than just competitive sales tax rates and income tax holidays that most provincial governments in India have taken to handing out as lures to attract investments. Samtel and Proview, a Taiwan-based monitor-maker invested in manufacturing facilities in Pondicherry because of the availability of trained manpower and the proximity of vendors. Then, the UT has its fair share of polytechnics and engineering colleges, 13 in all, turning out 3,000 students a year. HCL Peripheral's facility, for instance, is manned (if that's the right word) by women trained at such institutions.

Pondicherry isn't known for its activist labour; a new four-land highway connects it to Chennai-a drive of 90-odd minutes with some stunning vistas of the East Coast; the cost of power isn't prohibitive (on an average Rs 1.87 per unit as opposed to Rs 3.9 per unit in Tamil Nadu and Rs 4.5 per unit in Karnataka); it has some decent inland container depots; and companies obtain all clearances they need to set up operations in less than a month.

''We have been here only three months,'' says Concor's Sathish Kumar, ''but we've already signed on clients like IBM, Accel ICICM, Acer, Wipro, and HCL''. Adds HCL Infosystems' factory manager in charge of hr C.S. Dwivedi, ''We are no longer eligible for income tax benefits, but we still believe Pondicherry is the place to be.''

The attitude of the local government ensures that it is at least partially that. Industry Secretary G. Narendra Kumar's objective is to develop ancillary hardware industries and has zeroed down on cabinets, printed circuit boards and magnetic media. ''Companies won't have to depend on outsourcing every little component and can save on costs; from our perspective, we'll increase employment.''

Not everything is alright in a territory where the difference between the erstwhile French quarter-clean perpendicular streets, high-walled bungalows with enclosed gardens, wave-lapping quiet-and the rest-a heaving, bustling, clamorous extension of Tamil Nadu-is marked. There are still no direct flights to anywhere from Pondicherry; the airport has been closed for the past three years; the place doesn't have too much of a night life (although Auroville does have some good bands); and while there are enough schools and hospitals, more wouldn't hurt. The government is doing what it can to address these issues: an international school is in the offing, as is a corporate hospital. But schools and hospitals won't attract investors-just help them make up their minds. ''Pondicherry's biggest strength is that it has a mature industrial climate,'' says R. Raghunathan, Business Manager, NCR. But Kumar will have the last word. ''We missed out on the software boom. Chennai, Bangalore, Hyderabad, were all ahead of us. We decided to encourage hardware instead.'' Then, the industries secretary's face breaks into a smile. ''We capitalised on what others missed out''.

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