A Tale of Two Indias

Can the north ever catch the south?

Kiran Karnik, president of Nasscom, India's software industry association, was in Germany in March to drum up business for Indian info tech. It was shortly after riots had convulsed the northern Indian state of Gujarat, and Hindu zealots were threatening to touch off more violence by trying to build a temple where a mosque was torn down by rioters in Ayodhya 10 years earlier. The Germans all wanted to know the same thing: Was India going to blow up?

Karnik could understand their concern. In a 24-7 business like software and information-technology services, who wants to take a chance that a communal conflagration will disrupt business? But Karnik reassured his customers that the trouble had not affected the south, home to India's tech industry. "The south Indian states are more concerned with the economy," he said.

From afar, it sometimes seems as though all of India is in flames. But in fact, the world's second most populous nation increasingly is a country of two solitudes: the overpopulated and impoverished north, where religious tensions are giving foreign investors pause; and the go-go south, home to the majority of the nation's technical institutes, an educated workforce, and progressive legislators. The unrest is only deepening the national divide. For while New Delhi remains an island of investment in the north, states such as Maharashtra and Gujarat, once magnets for investment, are starting to lose ground to the south. Says Subir Gokarn, chief economist at Credit Rating Information Services of India Ltd. in New Delhi: "Informed foreign investors will look at India not as a whole but as islands of prosperity and poverty."

The growing divide between the four southern states--Karnataka, Tamil Nadu, Andhra Pradesh, and Kerala--and the rest of the country is prompting the south to become increasingly independent. Angry that the region's economic health has provided the central government with an excuse to limit federal funding, southern leaders are pushing for more decision-making power over education, employment, poverty alleviation, and infrastructure. "There can be no meaningful economic liberalization without decentralization," says Andhra Pradesh chief minister N. Chandrababu Naidu. There are even murmurs of secession. "Our India, with no Ayodhya temple talk, no Pakistan, no Delhi, no rabble-rousing politicians," muses an influential south Indian executive. "It's seditious, but what a delicious thought!"

Of course, no one seriously expects the nation to split in two. In fact, north and south have been regions apart for hundreds of years. Northern India endured a series of foreign invasions, and as a result developed a vibrant but confrontational culture. Southern India, far from New Delhi and bracketed on three sides by the Indian Ocean, instead developed strong commercial ties with foreigners. Moreover, the north's militant, caste-based brand of Hinduism is nothing like the south's peaceable faith, the product of 60 years of religious reforms that eroded the power of the caste system and separated church and state. In the south, says Kamala Ganesh, who teaches anthropology at the University of Bombay, "the political and religious divide has already taken place."

As a result, southern state governments can afford to be more pragmatic than their northern counterparts. Take chief minister Naidu. He travels the world with his laptop, selling investors on the virtues of his wired state. Locally, citizens can communicate with him through his Web site. Naidu and Karnataka chief minister S.M. Krishna have put a priority on liberalizing investment rules, cutting through red tape, and modernizing infrastructure. Naidu's hardball negotiations with New Delhi won him approval last year to operate international flights out of Hyderabad's airport. That means investors no longer have to travel through Bombay's chaotic facility. Both Hyderabad and Bangalore are building new airports.

Foreign investors have endorsed south India's rich business climate with their pocketbooks. Over the next three years, Lucent Technologies, Motorola, Texas Instruments, Cisco Systems, IBM, and Hewlett-Packard are all doubling their operations in Bangalore. "Bangalore was the natural choice for Cisco," says S. Devarajan, vice-president of Cisco's Indian global development center, the company's largest such facility outside the U.S. "The corridors of power are very clean here."

For its part, Tamil Nadu has managed to lure half of India's auto industry. Among the main players: Ford Motor Co. and Hyundai Motor India Co. Hyundai opened a $615 million plant there in 1998 to take advantage of the state's well-educated labor force, sophisticated infrastructure, and proximity to the modern Madras port. Hyundai India's president, B.V.R. Subbu, recalls being pleasantly surprised when a water line for the plant was in place four days ahead of schedule. "The local government is very responsive," says Subbu. "North and south are attitudinally different."

Moreover, the violence in the north is forcing existing foreign and domestic investors in India to start hedging their bets--all to the south's benefit. HSBC Holdings PLC has postponed its plans to open a branch in Baroda, Gujarat. "Political and economic stability is what companies look at when making investments," says Zarir Cama, chief executive of HSBC India. "Governments that espouse that, strongly and sincerely, win." The bank, which has been rapidly building up back-office operations in India, will now focus on southern India, creating 5,000 new jobs for the region by 2004. The World Bank has its India head office in New Delhi, but its back-office operations in Madras, the capital of Tamil Nadu. And General Electric Co., which has four call centers in and around Delhi, has expanded southward, attracted by the talent in Bangalore, where it is building its only research-and-development center outside the U.S., and to Hyderabad, where its new accounting back office is based.

The south's growing critical mass is giving it extra clout in the capital. In fact, the man who launched India's economic reform program in 1991 was India's first southern Prime Minister, P. V. Narasimha Rao. Subsequent coalition governments have found key supporters among southern regional parties. These, especially Naidu's Telegu Desam party, have not hesitated to use their influence. As a religious moderate, Naidu has shown his displeasure with the Hindu nationalism of the ruling Bharatiya Janata Party. After the Gujarat riots in February, Naidu refused to send his representative to New Delhi, and says his continued support is dependent on the government adhering to a secular line. In early March, when the fight over the temple in Ayodhya nearly turned ugly, the southern leadership sent the respected religious leader, the Shankaracharya of Kanchi, to help find a peaceful solution. His presence was a pointed reminder to the BJP that the south represents 180 million Hindus who prefer to co-exist with other faiths.

Such progressive thinking has caught the attention of northerners who yearn for the south's prosperity, tech industry, and peaceful way of life. Even the chief minister of the communist-run state of Bengal is talking about making it the "IT capital of India." Clearly, in the future the central government will be under increasing pressure to make sure that the southern model of a modern India spreads to the rest of the country.

By Manjeet Kripalani in Bombay

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