Going, going, gone!: Even as construction was on, companies vied to get a foothold at Hitech City Phase II near Hyderabad

Pssst!" said a net-head in a conspiratorial whisper once, "It's the coffee." All explained, then? Most certainly not, and in any case, the beverage-long consumed traditionally in South India-differs from Andhra Pradesh, the No. 2 state, to its neighbour Karnataka, No. 3. Besides, the caffeine has taken quite a while coming into effect. Back in 1996, for example, AP was ranked an obscure No. 22; by 1999, it had leapt to No. 3. Karnataka has risen more modestly, from No. 4, but has had to work itself into a near frenzy just to do that.

What's up? A concerted, dedicated, top-led effort to soar through the ranks-and position the state in the investor's mind as a tech tiger in the making, ready to roar. Marketing talk sounds nice in books, but here, the two states have actually made it happen.

Pitching For Smart Money

"I don't think that AP's climb from No. 22 to No. 2 in eight years is a mere coincidence," says Utpal Sen Gupta, President, Agro Tech Foods Ltd., the Rs 900-crore local part of the $28-billion food major ConAgra. "It is because of the systematic way that this state's government has gone about attracting investments." The state's Chief Minister (CM), Chandrababu Naidu, is not just a "marketing whiz par excellence", he adds, "he has walked the talk."

FACT SHEET

AREA: 2,76,754 sq km POPULATION: 75.7 million STATE DOMESTIC PRODUCT: Rs 1,21,703 crore PER CAPITA INCOME: Rs 14,700 ROADS: 1,98,600 KMSPOWER (TOTAL GENERATION): 10,359 MW MAJOR INDUSTRIES: Information technology, biotechnology, pharma, fertilisers, cement, chemicals, glass, aeronautical parts and electronic equipment.

Karnataka's cm, S.M. Krishna, doesn't attract quite the same gushing admiration, but the spring he has put in the state's stride is undeniable. And if money speaks louder than words, he can rest his case even before making it: The state, in fine fiscal health, is a big recipient of foreign direct investment (FDI). Besides, its capital Bangalore is Bangalore, always logged on, regardless of whether ICRA rates its municipal authority's bonds LAA+ or not (it does!).

That the two CMs take investor-friendliness as a personal mission, of course, helps. Specially when it comes to wooing the world's smart money. Naidu is justifiably proud of Hyderabad playing host to the Indian School Of Business (ISB), Microsoft's alternate development centre, and now, possibly a Volkswagen plant-for the signals it sends. A TCS software development center is to open soon.

For a palpable take on all the action, visit Madhapur, on Hyderabad's outskirts, the Hitech City. "Even before we have started construction, we already have customers. This is an indication of the growth in Andhra," says S. Ramanathan, Managing Director, Vanenburg, a Dutch company that has invested Rs 100 crore in its private it park here, and is putting in Rs 35 crore more. "We were blown away with the kind of reception we received here," says Ayush Maheshwari, Director (Technical Services and Operations), Automatic Data Processing Inc., a $7-billion company. He is clearly mesmerised by the way Naidu's men pursued his company till it finally decided on Hyderabad for its Indian operations.

The forgotten hinterland: Karnataka's problem could be in selling cities other than Bangalore, such as Mysore (above), as an investment destination

Committed civil officers play their role, too. Once made, the investments are to be nurtured, says R. Venugopal Reddy, Additional Director (Department of Industries), AP. Little wonder that between August 1991 and April 2003, AP received investment proposals worth Rs 1,35,709 crore (FDI forming a tenth of it)-the third highest after Maharashtra and Gujarat.

Bay Cells And Grey Cells

If the coffee in Bangalore tastes a little closer to what you'd expect of Starbucks, there's a reason for it. "Given its unique cosmopolitan nature, Bangalore has an edge over other cities," says Anand Sudarshan, CEO, Netkraft, a technology services company. This is, in brief, a city people like relocating to, even from California. Ask Venkat Panchapakesan, 37, a 15-year Silicon Valley veteran why he picked Bangalore for Yahoo!'s local software node, he points to the state's hospitality. "The speed of response and handholding was amazing," he exults.

Like with the original Valley, Bangalore's tech cluster is working on a self-reinforcing cycle. The more the Brownian motion-techies shifting jobs-the more unbeatable the cluster. More the jobs, more the motion. Every week, one new it multinational sets itself up in Karnataka, boasts Vivek Kulkarni, it and biotech secretary to the Government of Karnataka. "For instance," he says, "116 it companies were registered last year. Total investment by it companies in 2002-03 was Rs 1,708 crore, compared to Rs 1,383 crore during the previous year."

FACT SHEET

AREA: 1,91,000 sq km POPULATION: 52.7 million STATE DOMESTIC PRODUCT: Rs 1,17,908 crore PER CAPITA INCOME: Rs 16,300 ROADS: 1,48,589 kms POWER (TOTAL GENERATION): 6,297 MW MAJOR INDUSTRIES: Information technology, biotechnology, automobiles, apparel, agri processing, machine tools, precision engineering, electricals and electronics.

Biotech is the other emerging cluster. Any wonder that Castello, an Italian wine-maker, picked Karnataka? "We considered all alternatives," says Prabhu Yalagi, Managing Director, Castello Farm Products. "Frankly, the incentives offered by a couple of other states were much more attractive. But what clinched the issue was the aggressive hardsell the state government did, and the fact that Bangalore is the most cosmopolitan market."

Information and biotechnology, points out R.V. Deshpande, Minister for Large and Medium Scale Industries, Karnataka, are only part of the story. This state, after all, is the third biggest FDI recipient, having got Rs 11,800 crore over the last three years, more than twice it got in the previous three.

Compare that with AP's Rs 13,300-crore FDI figure over more than a decade. Karnataka, quite clearly, is way ahead of AP in attracting investment dollars. Yet, they both share a common problem of being one-city wonders, with little to show for the hinterlands, making them vulnerable to the classic allegation of showpiece development. Turning truly tigerish will involve more effort.

-with inputs from E. Kumar Sharma

"GOOD GOVERNANCE IS GOOD POLITICS"

Naidu: "Consistency in government policies is what is needed by business" The Chief Minister of Andhra Pradesh likes to describe himself as the Chief Empowerment Officer (CEO) of the state. And his room is equipped with a large projection screen, a laptop and a PDA. Here's the man who has marketed a near-lost case as one of India's hippest investment destinations. Excerpts: From No. 22 to No. 2. How has this been possible? Actually, I am surprised we are not No. 1 (smiles). We will use the feedback and metrics of this survey to plug any drawbacks we might have. Having said that, we have to go back to 1991, when the economy was freed. When I took over, I realised that things had changed. The old way of doing things would not work. All 'isms' and all ideologies were irrelevant. Only development mattered. Even Communist countries like China and Vietnam were opening up and doing a better job than us. If Malaysia, with a quarter population of Andhra, could attract more foreign investment than all of India, obviously we were doing something wrong. Was something wrong with Indians themselves? No, I did not think so. The highest per capita income in the US was of Indians. So the systems and policies of the government in India were wrong. India had a single-party stable government till 1992. Yet, most of the growth has come only after this period, under coalition governments. So it's not consistency in government that is required by business; it is consistency in policies. We are interested in creating the right policy framework and investment climate. You have almost perfected the art of personalised style of wooing investors... I do not have any ego. When Bill Gates came here, I received him personally at the airport. My officials told me about protocol. I told them he is my friend. Recently, senior officials of Volkswagen were here. I met them and requested them to set up their plant in Andhra Pradesh. I am also going to Europe to pitch for Hyderabad becoming a venue for Formula 1 racing. I have been the only Chief Minister who has been going to Davos continuously for the past six years. Q: Will the coming elections cause reforms to suffer? Good governance is good politics. Reforms is (about) introducing efficiency. I have asked the central government to allow us to initiate reforms in the labour sector. Today, if it costs me Re 1 to get something done (through) the private sector, it costs me Rs 8 to get the same done in government. We need reforms.