Tuesday, January 26, 2016

Educated migrants and Bangalore’s economic growth

Look at the population chart of Bangalore. Its population has grown 25x in the last 70 years. Formation of Karnataka state with Bangalore as capital helped it attract first set of migrants. Becoming home to many public sector companies did bring in the second wave of growth. Thanks to IT, Bangalore’s population saw a steep growth in the new century. And this wave was different than the earlier one’s as it attracted the educated migrants with higher incomes. (Link: http://timesofindia.indiatimes.com/city/bengaluru/Bangalore-gets-lions-share-of-educated-migrants/articleshow/18344203.cms). These new migrnats to the town took the GDP per capita of Bangalore to 3x of national average and made it cosmoplitian. If someone wants to witness India’s growth story, they better begin with Bangalore.

Most of these IT, ITES, BT, Pharma jobs were in export oriented firms. So for every one job created in this sector, at least one more job was created in the domestic services such as Education, Healthcare, and Transportation. That helped attract migrants from everywhere, within the state, from neighboring states, from distant north and east regions too. And it became home to many returning from abroad. You will also find non-native expats living in Bangalore with ease and comfort as well. If we assume there are 5 lakh residents of Bangalore working in IT and related sectors, another 5 lakh people in indirect services, and add two dependents to each of them, they would add up to 30 lakh people or approx.. 30% of Bangalore’s population. So what happens to the US economy concerns Bangalorean’s than the domestic economy.

Since it was already home to IT, e-commerce (Flipkart and Amazon) took roots here and it is seeing higher number of start-ups. Infrastructure development also provided jobs to many making it a self-reinforcing phenomenon. This nice story would continue provided the IT run continues. But it is facing many challenges. As the sector is reaching a maturity phase, its growth rates have slowed down to single digit as it is fast approaching saturation. Automation, cloud computing etc. are changing the resource requirements needed in the IT sector. As a result the numbers of new jobs are not growing like before. With that, new migrants coming into Bangalore is also slowing down. Moreover Bangalore’s road infrastructure is not sufficient enough to move around easily. Costs have gone up a lot in the past decade. Either due to cost or for other reasons, if IT companies begin to explore other towns, though it seems less likely, it would affect Bangalore’s economic growth. Migrants can leave as fast as they come. And the supporting jobs too would be gone in no time. E-commerce has too many players and some of them will have to wind up their business and a majority of start-ups too would run out of cash if they do not produce a marketable product. If and when such a thing happens, it will be Bangalore which will see the worst impact. Self-reinforcing phenomenon will become a self-defeating process with support jobs too disappearing. 

Will the IT industry find new avenues to grow? That would decide what happens with Bangalore’s growth too.