INDIAN STATE : KARNATAKA

General Information

Situated on a tableland where the Western and Eastern Ghat ranges converge into the Nilgiri hill complex, the state of Karnataka is confined roughly within 11.5 degree north and 18.5 degree north latitudes and 74 degree east and 78.5 degree east longitude. The state is bounded by Maharashtra and Goa states in the north and northwest; by the Arabian Sea in the west; by Kerala and Tamilnadu states in the south and by the state of Andhra Pradesh in the east.

Karnataka has been a pioneer in industry. For several years, the state has been pursuing progressive industrial policies to meet the changing needs of the state's economy and industry. In recent times, Karnataka has emerged as the knowledge and technology capital of the country. IT and related industries, bio-technology and strong research and development institutions have given Karnataka a global advantage.

Fact File

Advantage Karnataka

• Investor friendly Government- Simplified procedures, Fast Track approvals through Single Window Mechanism, and escort service from Karnataka Udyog Mitra.
• Salubrious climate, congenial environment, rich culture, cosmopolitan lifestyle, excellent health care and education facilities.
• Good connectivity and good logistic Support for investments.
• Good Infrastructure- availability of land, quality power and water.
• Excellent telecommunication network and optical fiber connectivity thought the state.
• Good law and order, best industrial relations and lowest man-days lost.
• Among the Country's top 5 industrialized states.
• Over 500 MNCs and 66 global fortune 500 companies doing business in the state.
• Presence of leading IT, Biotechnology, Electronics, Telecommunications and heavy machinery companies.
• Presence of More than 100 world-renowned high-end research and development organizations in the State.
• Highly skilled manpower base- large number of engineering colleges and Technical Institutions.
• First State to bring Industries Facilitation Act to ease the environment for doing business in the state.
• Among the fastest growing and largest markets in India.
  

Economic Infrastructure

Roads

Road network in Karnataka:

National Highways: 3728 Km
State Highways: 9829 Km
Major District Roads: 28247 Km
Other District Roads: 1634 Km
Village and Other Roads: 88154 Km

Power

Karnataka Power Corporation (KPCL), a public sector company, owned by Government of Karnataka is engaged in construction, operation and maintenance of generation stations in Karnataka. It is presently providing more than 70% of the needs of the State. It has built up expertise in the construction and operation of both hydro and thermal stations.

Generation:

The state owned generating company M/S KPCL and central sector establishments M/S NTPC/ NLC have already drawn up plans for establishing new generating units to meet the power requirements in the state. With the liberalization and opening up the power sector for private sector participation through policy initiatives by the Government of India and Government of Karnataka, the IPPs have also come up with proposals for establishing new generating plants in the state, to meet the state's additional capacity requirement.

Transmission and Distribution network:

The Karnataka Power Transmission Company Limited (KPTCL) has assessed that present transmission network is sufficient to handle the peak load of about 3500 MWs only. KPTCL has already prepared a 10 -year perspective Transmission plan up to the year 2009-10 with a total capital investment of about Rs. 8500 crores to meet the projected evacuation as well as system improvement requirements. KPTCL has also estimated that approximately an amount of Rs 3000 crores is required for improving the present distribution network, and an additional amount of Rs 2000 crores for distribution expansion during next ten years. Thus the total capital investment of Rs 13500 crores is required for improvement of transmission and distribution system during next ten years, to develop a sustainable T&D network to achieve the objectives of providing reliable and quality power supply and to reduce the system losses to accepted levels of less than 15%.

The additional requirement of power and energy is proposed to be met through several sources and measures. The first and the foremost measure to be taken is through reduction of losses from 26% to 14%. If the system improvement work is carried out carefully the benefit cost ratio will be quite high. It also helps avoid installation of additional capacity and thus mitigate the pollution effects. The proposed investment of Rs 13500 crores for strengthening the transmission system is not only to reduce losses, but also to handle additional loads. A detailed exercise on system improvement works has to be carried out to maximize benefit cost ratio.

Government of Karnataka encourages electricity production from alternate and renewable sources of energy. These include microhydel, wind power, Biomass and cogeneration in Sugar plants.

Aviation

Karnataka has five functional airports at Hubli, Mysore, Belgaum, Mangalore and Bangalore.

Further, in order to keep pace with the rapid development of Bangalore as India's leader in information technology, biotechnology and the services industry, the Government of Karnataka and the Airports Authority of India initiated a greenfield project -Bangalore International Airport Limited (BIAL) is. Bangalore International Airport Limited (BIAL) is a Public Limited company under the Indian Companies Act, formed to build, own and operate the largest greenfield private sector owned and operated airport in India - the Bangalore International Airport. The new Bangalore International Airport is estimated to open for commercial operations in April 2008. Private promoters hold a 74 percent stake in BIAL while the government holds the remaining 26 percent. The shareholding structure of BIAL is as follows:

• Siemens Project Ventures, Germany: 40 percent
  
• Unique (Flughafen Zurich AG)-Zurich Airport, Switzerland: 17 percent
  
• Larsen and Toubro, India: 17 percent
  
• Airports Authority of India: 13 percent
  
• KSIIDC, Government of Karnataka: 13 percent

Bangalore Metro

The Bangalore Metro has all the components required for a successful integrated public transport system. It offers:

• Comprehensive connectivity
  
• Convenience
  
• Comfort
  
• Affordability
  
• Frequency
  
• Reliability
  
• Safety
  
• Aesthetics

The first phase of Bangalore Metro envisages a 33 Km elevated and underground rail network with 32 stations. The East-West corridor will be 18.10 km. long, starting from Byappanahalli and terminating at Mysore Road terminal, going via Old Madras Road, Indiranagar, C.M.H. Road, Ulsoor, Trinity Circle, M.G. Road, Cricket Stadium, Vidhana Soudha, Central College, Majestic, City Railway Station, Magadi Road, Hosahalli, Vijayanagar and Deepanjali Nagar.The 14.90 km. North-South corridor will begin at Yeshwantpur Terminal and terminate at R.V. Road terminal going via Mahalakshmi, Rajajinagar, Kuvempu Road, Malleswaram, Swastik, Majestic, Chikpet, City Market, K.R. Road, Lalbagh, South End Circle and Jayanagar. Out of the 33 km., 6.76 km. will be underground near City Railway Station, Vidhana Soudha, Majestic and City Market and most of the rest will be elevated.

The project is budgeted at more than 54.5 billion rupees (about US$ 1.2 billion) and is envisioned to be completed by 2011.

Special Economic Zones (SEZs)

Special Economic Zones (SEZs) are specifically delineated duty free enclaves primarily to promote trade, deemed to be foreign territory for the purposes of trade operations, duties and tariffs. The scope for participation is broad based which allows any private /public / joint sector / FDI / State Government departments to establish SEZs.

Constantly on the path to making the ambience more conducive for investments and trade, Karnataka has been proactive in spearheading initiatives on the SEZ front.

The Government of Karnataka has been instrumental in driving growth through:

• Sector specific SEZ for Pharmaceuticals &
  
• Biotechnology at Hassan
  
• Sector specific SEZ for Food Processing and Agro-based industries at Hassan
  
• Sector specific textile SEZ at Hassan
  
• IT SEZ at Mangalore
  
• Coastal SEZ at Mangalore

The proactive steps taken by the Government has resulted in encouraging the establishment of SEZs for specific sectors like IT & ITES, Hardware, Apparel, Petrochemicals, etc, through both public / private initiatives, opening up growth corridors across various locations like Bangalore, Mysore, Mangalore and Hassan.

Institutional Framework For Industrial Promotion

Karnataka government has set up Karnataka State Financial Corporation [KSFC]

KSFC provides term loans to new and existing units up to 300 lakh in case of proprietary, partnership and joint Hindu family concerns and up to Rs. 500 lakh for corporate bodies and registered cooperative societies. KSFC has a number of tailor made schemes, suitable to different kinds of entrepreneurs and projects. KSFC has fully decentralised its operations and the corporation has 7 Zonal offices, 23 'A' grade branch offices, 16 B grade branch offices and 2 field offices spread throughout the State.

Karnataka State Industrial Investment and Development Corporation [KSIIDC]

KSIIDC extends finance to the bigger projects soley or jointly with KSFC, commercial banks or any other financial institutions. KSIIDC also participate in joint stock companies by way of equity contribution. The corporation has a wide network throughout the State with ----- zonal offices and ----- branch offices.

Further, national level financial institutions like Small Industries Development Bank of India [SIDBI], Industrial Development Bank of India [IDBI], Commercial Banks are extending required financial/ loan assistance to the investors.

Policy Framework

New Industrial Policy 2006-2011

Salient features of the New Industrial Policy 2006-2011:

• It aims at increasing the percentage in GSDP growth, strengthen manufacturing industry; increase share of exports from Karnataka in the National exports, to generate additional employment to at least 10.00 lakh persons in the manufacturing and service sectors, promote diversified industrial base; reduce regional imbalance in the matter of economic development and employment opportunities and ultimately aim at overall socio-economic development of the State.
• The strategies for further industrialisation of the State during the next five years include zoning of various taluks with special emphasis on most/more backward taluks for the purpose of industrial growth, develop in an integrated manner, industrial infrastructure in various key locations of the State ahead of the requirements, implement mega industrial water supply schemes for potential locations through SPVs; encourage specialised industrial infrastructure for specific sectors and SEZs, encourage development of industrial cluster/corridor and give priority to upgradation of infrastructure in existing and new industrial areas and to that effect set-up an infrastructure Upgradation Fund with an initial corpus of Rs.500 Crores, promote Human Resource Development; promote Agro Food Processing Industry; take up technology upgradation for Survival and growth of SSI sector and create a Technology Upgradation Initiative Fund with a corpus of Rs.25.00 Crores; provide marketing assistance to SSI sector and promote local entrepreneurship etc.
• Extending various incentives and concessions relating to Entry Tax and Special Entry Tax; waiver of conversion fine; exemption of stamp duty and reduction of registration charges have also been considered.

Policy Vision

• Facilitate the State achieve a GSDP growth of over 9%, which in turn call for an industrial sector growth of over 12%.
  
• Focus on strengthening of the manufacturing industry in the State and to increase it's percentage share of the GSDP from the present average of 16.70% to over 20% by the end of the policy period.
  
• Achieve an increased share of Karnataka's exports in the National exports from the present 15% to 20% by the end of the policy period.
  
• Create additional employment generation to at least 10.00 lakh persons in the manufacturing and service sectors during the Policy period.
  
• Promote diversified industrial base with strength in both old economy & new economy fields.
  
• Facilitate reduction of regional imbalance in the matter of economic opportunities, employment and growth.
  
• Endeavor to promote sustained industrial growth by facilitating accelerated flow of investments.
  
• Promote sustained, growth-oriented industrialization with employment & revenue generation, for overall socio-economic development of the State.

Full text of the policy (.pdf)

Karnataka Export Promotion Policy 2002-07

Karnataka has a long tradition of overseas trade. Historically, Karnataka has been a major exporter of commodities like Coffee, Spices, Silk, Cashew nuts, Handicrafts and Agarbathies. In the last two decades the State has emerged as a major player in the export of Engineering goods, Readymade Garments, Leather goods, Chemicals, Minerals and Ores etc. Since the second half of the 1990's, Karnataka has carved out a niche for itself in the global market place as the knowledge and technology capital of the Country. The State has made rapid and spectacular strides in the new economy. Information Technology, Biotechnology and State of the art Research and Development Institutions have given Karnataka a pride of place as a frontier knowledge State in India. Indeed Karnataka has emerged as a leader in the new economy in this part of the World.

Karnataka's mission statement on exports is to facilitate the rapid and sustained growth of exports from Karnataka and to increase Karnataka's share in all India exports to 15% by 2007. It is proposed that this target will be achieved by:

• Providing an effective, proactive and supportive Institutional mechanism for the rapid growth of exports.
  
• Operationalising sustainable medium term Export Promotion Sectoral Strategies.
  
• Building effective and competitive export Infrastructure

Objectives of the policy

• Focus on existing exporting industries, and to provide them with necessary support to give further boost to exports from these industries.
  
• Motivate Industries in Karnataka exporting through merchant Exporters in other States to export directly.
  
• Encourage industries/traders with products having good export potential to enter the export field.
  
• Provide a conducive environment for motivating new export oriented units to set-up their base in Karnataka.
  
• Bring about technology and skill upgradation in the traditional export sectors like Coffee, Silk, Textiles, Granites, Agarbathies and Handicrafts to enhance value addition and quality competitiveness.
  
• Enhance the export potential of non-traditional sectors like Electronics & Software, Services, Bio-Technology etc.
  
• Facilitate creation of hi-tech ITES clusters in different locations in the State.
  
• Encourage capacity building for consistently upgrading best practices in exports.
  
• Promote innovation for export of new value added products.
  
• Increase the unit realization of exports through technical and design inputs, modernization of production processes and skills.
  
• Provide institutional framework for developing pool of human resource talent in specialized trades.
  
• Provide a simple transparent and responsive regulatory environment for unhindered growth in exports.

Mahiti - Millennium IT Policy

Karnataka is in the forefront of Information Technology and is called the Silicon State of India. In addition, the state capital Bangalore has shown tremendous growth in the IT Sector and is the IT Capital of India.

Objectives of the Policy

• Utilize the power of Information Technology in the overall goal of the Government of Karnataka in eradicating poverty and empowering women
  
• Effectively reduce unemployment by absorbing the major share of educated youth into the IT Industry
  
• Promote the usage of Kannada in Information Technology
  
• Use e-governance as a tool and deliver a government that is more pro-active and responsive to its citizens
  
• Unleash the Karnataka Incubation engine
  
• Encourage business with non-English speaking countries
  
• Maintain the pre-eminent position of both Bangalore and Karnataka in the field of Information Technology.

Full text of the policy

The Millennium Biotech Policy (.doc)

The objectives of the Millennium Biotech Policy are:

• Spread awareness about the investment opportunities in biotechnology, genomics, bioinformatics, biofuels, contract research, etc., to the entrepreneurial community.
• Sustain and maintain the present pre-eminent position of Karnataka and Bangalore in the field of biotechnology.
• Outline a set of incentives and concessions for the biotechnology industry to attract investments to the State.
• Provide specific infrastructure as well as enhance human resources for the development of biotechnology.
• Encourage the growth of bioinformatics in Karnataka.
• Provide an appropriate institutional framework to achieve all these objectives.

Full text of the policy (.doc)

The Millennium BPO Policy

Karnataka has witnessed exceptional growth in the IT Services and Product companies proving to be a large employment base for the state's engineering graduates. The recent investments in the knowledge-based sector have attracted a large number of BPO companies as well. Companies that are either Captive, Pure play Third Party Providers or BPO out fits of large IT Services companies. We expect tremendous employment opportunities for Arts, Science and Commerce graduates. Karnataka's Department of IT in collaboration with Confederation of Indian Industry (CII) as well as the STPI, Bangalore has worked with McKinsey to chalk out a strategy to create a million jobs in Karnataka by 2010. Based on this study and the extensive discussions with the BPO companies in India and the IT Task Force, the government of Karnataka has announced the Millennium BPO Policy.

Objectives of the Policy

The objectives of the BPO Policy are:

• Sustain Karnataka's competitive advantages in Human Resources, Telecom and other Infrastructure areas.
  
• Create new employment opportunities in the Karnataka.
  
• Promote investment and create an investor-friendly environment for the BPO sector.
  · Provide necessary framework to ensure Data Security and Customer Secrecy for BPO firms.
  
• Pro-actively market State of Karnataka and its value proposition.
  
• Provide a state level mechanism for certification and accreditation of HR Training Agencies.

Full text of the policy (.doc)

Karnataka SEZ Policy

SEZs are specifically delineated duty-free enclaves treated as a foreign territory for the purpose of industrial, service and trade operations, with exemption from customs duties and a more liberal regime in respect of other levies. To promote foreign investment and other transactions, domestic regulations, restrictions and infrastructure inadequacies are sought to be eliminated in the SEZs for creating a hassle-free environment. The SEZ scheme seeks to create a simple and transparent system and procedures for enhancing productivity and the ease of doing business.

SEZs can be developed in the public, private or joint sectors or by the State Governments. They are expected to promote the establishment of large, self-contained areas supported by world-class infrastructure oriented towards export production. Exploiting the full potential of the concept of SEZs would bring large dividends in terms of economic and industrial development and the generation of new employment opportunities.

Full text of the policy

Tourism Policy 2002-07

Objectives of the tourism policy:

• Encourage private participation for the development of infrastructural facilities
  
• Promotion of eco-tourism with the intention of enabling tourists to appreciate the flora and fauna of the State
  
• Promotion of tourism-related activities
  
• Development of travel circuits and diversification of tourist attractions with a view to increase tourist arrivals into the State
  
• Creation of new tourism products that meet global standards of quality
  
• Fully tap the tourism potential of the State
  
• Promotion and marketing of Karnataka's tourism products in national and international Markets
  
• Promotion of adventure sports/entertainment activities and Highway Tourism.

Full text of the policy

Investment Opportunities

Karnataka presents a plethora of investment avenues spread across diverse industry verticals spanning both products and services sectors.

With opportunities in virtually every facet of today's economy, the State is a veritable treasure trove for investors. Given the wide variety of options available, Karnataka has so much to offer to every investor.

Focus Sectors for Investment

• Engineering
  
• Automobile and Auto Components
  
• Aerospace
  
• Aircraft Maintenance, Repair and Overhaul
  
• Information Technology
  
• Biotechnology
  
• Pharmaceuticals
  
• Apparels and Textiles
  
• Food Processing
  
• Steel and Metallurgical Industry
  
• Contract Research and R&D
  
• Oil Refining and Petrochemicals
  
• Tourism
  
• Express Highways
  
• Minor Seaports
  
• Minor Airports
  
• Water Supply Projects
  
• Waste Water Treatment Projects
  
• Industrial Parks / Townships
  
• Power Generation & Distribution
  
• Bridges, Flyovers & Urban Transport Systems
  
• Aerospace Technology & Aircraft maintenance

Investment Incentives

Investment Incentives as according to New Industrial Policy (2006-11)

• Investment Subsidy
  
• Entry Tax Exemption
  
• Stamp Duty Exemption
  
• Concessional Registration Charges
  
• Special Concessions for Export
  
• Special Incentives to Mega Industries
  
• Waiver of Conversion Fee
  
• Relief Package for Revival/ Rehabilitation of Sick Industries

Investment Incentives in the Information Technology Sector

Karnataka is on the forefront of Information Technology and is called the Silicon state of India. The state capital, Bangalore, has shown tremendous growth in the IT sector and is the IT capital of the country.

The Karnataka Government offers special assistance, incentives and concessions for the Information Technology industries, which have investments in fixed assets upto US$ 21.6749 million

• Entry Tax Exemption: Information Technology industries will be exempt from payment of Entry Tax on computer hardware, computer peripherals and other capital goods including captive power generation sets, during implementation stage which can be extended upto 5 years from the date of commencement of implementations
• Power Tariff Concessions
  
  • Software industries will be treated as industrial (and not commercial) consumers and electricity tariff applicable to the industrial consumers will be levied on such industries
    
  • Software industries, which need electrical power upto 5 KVA, will be permitted to be established without any local restrictions and will be made eligible for all incentives and concessions.
    
  • As continuous uninterrupted and quality power supply is one of the prime requirements of sustenance and growth of Information Technology industries, these industries will be given priority in the sanctioning and servicing of power. The IT industries will also be exempt from power-cuts without any time limit.
    
• Quick Clearances from Pollution Control Board: Karnataka State Pollution Control Board has simplified the procedure for seeking clearances under the Air Act and the Water Act for the software companies that use captive DG Sets
  
• Concessions on Company Registration Charges IT companies taking up expansion, diversification, and modernization get concessions on registration charges
  
• In order to promote investment and create an investor friendly environment for BPO sector in particular, the government has announced an explicit BPO policy
  

Incentives in the Biotech Sector

The government of Karnataka formulated a biotech policy with the aim of spreading awareness about the investment opportunities in bio technology, genomics, bioinformatics, biofuels, contract research, etc.

• Tax Concessions, similar to those given to the IT industry.
  
• Fiscal Incentives: biotechnology industry will be exempt from the payment of entry tax on all inputs as well as capital goods, including captive generation sets, during the implementation stage, which can be up to 5 years or during the construction period whichever is earlier.
  
• Mega projects will be offered a unique concession package.
  
• Captive generation sets installed by the biotechnology industry will be exempted from electricity tax for a period of 5 years.
  
• Biotech companies will be treated as industrial, not commercial consumers and the relevant electricity tariff will be levied on such companies.
  
• Bioinformatics companies that use up to 5 KVA power will be permitted to be established without any locational restrictions.
  
• The government will encourage setting up of venture capital funds for biotech industries with private participation.
  
• Concessions will be provided for creating employment.

Prestigious Multinational Companies Operating in Karnataka

The State's proactive stance and its investor friendly policies have ensured that international investors have Karnataka high on their list of preferred destinations.
Hence, it's but natural that several multinational companies have made Karnataka their home. What's more, Karnataka has the enviable status of the presence of these international majors across diverse industry verticals. The following is an indicative list of MNC 's who have Karnataka as their preferred address.

• Information Technology: IBM, Texas Instruments, Intel, Hewlett Packard, Novell, Tandem, Digital, Motorola, Verifone, IMR, Siemens, Bull, Citel, Philips, Elxsi, LG, British Aerospace, Acer, Oracle, PHL, Sony, Hitachi, Lucent Technologies, Sun Microsystems, Kindle Systems, Healthscribe, First Ring, Compaq, SAP, Dell, Sanyo, Accenture, Honeywell.
• Electronics & Communications: Sanyo, Lucent, 3M, AMP, TYCO, NEC, Samsung, Krone, Rittal, GE, Yokogawa Blue Star, British Telecom, AT&T, Airtel, Ericson.
• Machine Tools: Fanuc, Widia, Fritz Werner, Makino, Alfred Herbert. Engineering: SKF, Ingersoll Rand, Waltex, Durco, Wrigten, Goulds, Moog Control, Yuken.
• Automobiles: Toyota, Suzuki, Volvo, Hitachi, Komatsu. Auto Components: Bosch, Rolls Royce, Rover, Delphi, Spicer, Denso, Yuasa.
• Food Processing: Unilever, Britannia, Nestle, Nissin, Pepsi, Coca-Cola, Heinz, Wrigleys.
• Agriculture: Monsanto, Advanta, Cargil.
• Pharmaceuticals: Astra, Smithkline Beacham, Warner Lambert.
• Floriculture: Sayag, Flodac, Noorcam, Stokmenrozen, Dalsemkassenvow.
• Apparel: Crocodile, VanHeusen, Arrow, Allen Solly, Lee, Lacoste, Levi Strauss, Tommy Hilfiger.
• Aerospace: GE, Rolls Royce, BAE, Turbo Meca.
• Cement: Italicement
• R&D: GE, Exxon, ABB, GM.
• Others: Kodak, Yuken, Stumpp Schuele, Wilkinson Sword, Deneb Hitech, Tractabel, Elf, Fosroc, Phoenix, Valtek.

Useful Web Links

• Official Website of the Government of Karnataka
• Karnataka Udyog Mitra
• Official Government website for IT industry