Urban Renewal? Bangalore's poor infrastructure has sparked a bitter feud over city versus rural needs.

Byline: Ron Moreau and Sudip Mazumdar

Kiran Mazumdar-Shaw has a lot invested in Bangalore, the mecca of southern India's new economy. She was born in the city--and in 1978, as a young chemist, she started the biotechnology company Biocon, which, over the past decade, has grown spectacularly. The firm has seen its revenues surge from $20 million to $200 million annually. And Biocon's work force has expanded to 2,000.

But Mazumdar-Shaw is not entirely happy these days. The CEO says she spends too much time dealing with issues related to Bangalore's crumbling infrastructure, which has failed to keep pace with the city's breakneck growth. Mazumdar-Shaw has had to install her own power-generating station to compensate for frequent electricity outages, buy a fleet of buses to transport employees to work due to a lack of public transportation and stagger working hours to overcome the city's horrific traffic jams. If the city's government doesn't do something soon to overcome those problems, the businesswoman asserts, "my next expansion will certainly not be in Bangalore. There are many other options for me today."

Such tough talk by one of Bangalore's top entrepreneurs ought to galvanize the political leaders of Karnataka state, of which Bangalore is the capital. If Mazumdar-Shaw or other frustrated CEOs were to start investing elsewhere, the business confidence in India's fastest-growing city would be shattered. The 1,500 high-tech firms in Bangalore produce $7 billion in software exports yearly, or 35 percent of India's total exports. But amazingly, little is being done to modernize Bangalore's dilapidated streets, drainage system and power grid. That's because the coalition government that runs Karnataka--a union of the Janata Dal (or Secular) Party and the Congress Party--is actively feuding with the city's business community. Some analysts say the government is more concerned with pandering to rural voters than responding to the frustrations of wealthy business people. Similar conflicts are playing out in other parts of India as politicians try to balance the concerns of rural constituents with the pressing need to improve the rickety infrastructure of fast-growing cities. Ramesh Ramanathan, a civic activist who heads the Janaagraha Center for Citizenship and Democracy in Bangalore, says his government "is spending most of its time trying to manage its [political] destiny, and I'm afraid it's not going to be able to [address] the crucial, larger issues of urban reform and development."

Deve Gowda, the powerful 72-year-old former Indian prime minister and veteran Karnataka political leader, is the bete noire of Bangalore's IT sector. He effectively controls the state in an uneasy alliance with Chief Minister Dharam Singh, an unexceptional Congress Party stalwart. A longtime champion of the rural poor, Gowda perceives some of Bangalore's business leaders as being greedy stalking-horses of the state's former chief minister S. M. Krishna, whom Gowda's forces defeated in the last state election, in early 2004. In Gowda's view, Krishna is trying to make a political comeback with the help of the business community, and in particular Narayana Murthy, the chairman of Infosys, one of India's most successful outsourcing companies. The two men have been jousting for months.

A close friend of Krishna's, Murthy has been at the forefront of IT industry lobbying efforts to modernize Bangalore. But Gowda resents the carping about city services, warning last week in an interview with NEWSWEEK: "Business people should not involve themselves in politics. Don't try to disturb this government by branding it as not extending cooperation to solve the infrastructure problem."

While claiming not to be an enemy of Bangalore's IT sector, Gowda doesn't seem inclined to help the industry either. One of the new government's first orders of business was to deep-six the Bangalore Agenda Task Force, a public-private partnership started by Krishna to reverse the precipitous decline of the city's infrastructure. The business bosses fought back by threatening to boycott last month's annual Bangalore IT.Com exhibition. In an effort to calm tension, Singh convened a meeting that included Gowda and Murthy. In his presentation, Murthy talked about the need to improve the coordination, efficiency and accountability of the city's many ...