Telangana’s small town IT hubs and how they have been faring

The Telangana government has been trying to attract companies with low operating costs and rents, and relatively lower salaries to tier-2 cities. Incentives are also offered to companies, ranging from initial tax reimbursements and subsidies to ease in land allotments.
Ministers Harish Rao and KTR at the Siddipet IT Tower
Ministers Harish Rao and KTR at the Siddipet IT TowerTwitter/KTRBRS
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In 2016, the Telangana government officially announced a focused policy to develop tier-2 cities outside of Hyderabad as Information Technology hubs. Seven years on, IT towers — plug-and-play office spaces set up by the state government —  have come up in eight locations, where over 13,000 people are employed in scores of tech firms. Starting in Warangal, these IT hubs have expanded to several other smaller cities such as Karimnagar, Khammam, Mahabubnagar, Siddipet, Nizamabad, Suryapet and Nalgonda. The government’s goal is to create 60,000 jobs in these locations outside Hyderabad by the end of the next six years. 

In Hyderabad too, the government plans to encourage the IT sector to spread beyond the western corridor around HITEC City where it is now heavily concentrated, to areas like the Old City. Since the 1990s, when Chandrababu Naidu was the Chief Minister of united Andhra Pradesh, the IT industry has grown immensely in Hyderabad. This rapid growth has also been criticised for resulting in regional disparities by sidelining small towns, among other reasons. After the state’s bifurcation in 2014, the Telangana government has been trying to keep up the pace of IT growth while also spreading outgrowth across districts. According to the latest annual report of the IT department for 2022-23, the total IT/ITeS employment in Telangana was at 9.05 lakh jobs, way up from 3.23 lakh jobs in 2013-14. 

A recent report by Nasscom and Deloitte India studied how the technology sector in India was expanding from seven major hubs ( Delhi, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, and Pune) to 26 smaller cities such as Warangal, Vijayawada, Mysuru, Kochi, Coimbatore, Lucknow, and Guwahati. It found that in these smaller cities, with relatively lower salaries, the “talent pool costs” are 25-30 % lower than in the seven big cities. Renting properties was also cheaper by 50%, it found. But Telangana’s strategy is to spread even wider, not just into tier-2 towns like Adilabad, but even tier-3 locations such as Ramagundam and Wanaparthy. IT department officials and tech entrepreneurs spoke to TNM about how some of these companies were brought into the idea of Telangana’s IT towers, how they’re finding and managing local employees, and how they plan to sustain the momentum. 

How tier-2 IT hubs came about in Telangana 

After Telangana was formed, the government “spent the first two to three years wasting time chasing big companies like TCS, Infosys and Wipros, trying to push them to move some of their workforce to tier-II towns, but it did not give us any results,” said Telangana’s IT Secretary Jayesh Ranjan. But this changed with a visit to the United States in around 2017, he said, when state government officials met with a few NRI tech entrepreneurs who were keen on setting up offshore offices in their hometowns. 

Lax Chepuri, CEO of the US-based firm Technogen, Inc., moved abroad nearly 25 years ago. Whenever he visits his hometown Khammam, he meets people who ask him to help find their son or daughter a job, he says. Technogen now has around 80 employees working out of an office space in the Khammam IT tower, and 250 others in its Hyderabad office. Most of the employees work on IT product development, for clients ranging from the US government to telecom and pharmaceutical companies in the US and UK. 

Vijay Rangineni, CEO of IT investments in Telangana, said that it is mainly people like Lax who hail from these towns and now run their own companies abroad, who have taken an interest in setting up companies in the IT towers. “They are mostly mid-scale to small companies, with around 100-200 employees in each centre,” Jayesh Ranjan said. Some of them are Telangana-based companies too. From multinational companies like 3M (in Karimnagar) and NTT Data (Adilabad) to smaller Indian companies such as HRH Next (Warangal, Mahabubnagar, Nizamabad) and Bharat Clouds (Nizamabad, Siddipet, Mahabubnagar), there are a range of firms coming to Telangana’s emerging IT hubs. 

Lax says he helped bring nearly 19 companies to the Khammam IT tower, as he wanted to help generate employment in his hometown. “Initially it took time to convince other companies. We told them they had to spend only on operating expenses, that they could just try it out for a couple of months.”

Plug and play 

According to Jayesh, the state government has spent Rs 25 to 40 crore on each IT tower facility, which can accommodate 500 to 1000 employees. “All the buildings are completely government-funded. We find the land and architects, design the building, add furniture etc.,” Vijay said, adding that companies don’t pay rent but are charged nominal costs for operations (electricity, water, housekeeping, maintenance, etc.) 

“We charge Rs 2,200 per seat per month in the first year and Rs 3,500 from the second year onwards. The government is not making money, but the intention is to support IT growth and create local economies,” he said. 

Local jobs for local candidates 

According to Deloitte Research, 11–15 % of the tech talent in India is based in tier-2 and tier-3 cities. The companies coming to IT towers mainly hire for entry-level positions. Once they send in the job description, the IT department’s Telangana Academy for Skill and Knowledge (TASK) trains students from colleges in the ‘catchment area’ for free, Jayesh said. He noted that each IT tower opened so far has 10 or more engineering colleges in its catchment area, “thanks to privatisation of education, especially in the Telugu states.” The Nasscom-Deloitte India report on emerging tech hubs notes that south Indian cities like Warangal “have a good education ecosystem with a favourable ratio of schools to population.”

According to Vijay, TASK works with around 42 colleges where nearly 2.25 lakh students are graduating each year (including nearly 70,000 engineers and 10,000 MBA graduates). Students are trained in .NET, Python, ServiceNow and other skills requested by companies. Candidates are then shortlisted by TASK through tests and interviews, and nearly 50% of them are typically hired, he said. 

Ahead of the opening of the Nalgonda IT tower where at least 14 US-based companies have expressed interest, a job fair was held to provide ‘local placements for local youth,’ where over 12,000 individuals reportedly showed up for 325 job vacancies. In Khammam, Lax said that amid the COVID pandemic, TASK presented 5,500 applicants to the 19 companies which selected 600 candidates on the very first day of recruitment. 

Jayesh said that there’s currently no strategy of focusing on specialised industry segments in each town. “We initially expected most companies to do low-end, backend kind of work here. But whenever we visit these centres, we see there are lots of applications of new generation technologies, and the nature of work ranges from product development to animation and artificial intelligence to product development… They're doing work of similar quality as the companies based in Hyderabad,” he said. 

Vijay too says that the portfolio of companies is diverse, and includes product companies, service companies, companies providing financial services, customer service, tech recruitment services, etc. 

Benefits for companies, candidates 

The Telangana government has been trying to attract companies with low operating costs and rents, and relatively lower salaries (with monthly pay starting at Rs 25,000 to 50,000). The government also offers various incentives to companies that align with its Information and Communications Technology (ICT) policy by moving to tier-2 locations, from initial tax reimbursements and various subsidies to ease in land allotments among other benefits. 

“Companies prefer Telangana because the government is very accessible,” Vijay said. Vamshi Reddy, CEO of Quadrant Resource, agrees, saying with Jayesh and even IT Minister KT Rama Rao being relatively accessible even through Twitter, the government functions “like corporate” in removing any roadblocks is an inducement for companies. 

Young people, on the other hand, are also keen on working in tier-2 locations owing to shorter commutes and proximity to their homes, said Vijay, adding that in private CBSE schools and gate communities coming up in these towns, employees can experience a lifestyle similar to what they would experience in Hyderabad or Chennai, at a lower cost of living. The former Tech Mahindra executive claimed that attrition rates in tier-2 locations are considerably lower than in cities like Hyderabad. 

But what are the challenges?

The Nasscom-Deloitte India report, which includes case studies of 19 companies, found that some of the main challenges companies faced in tier-2 locations were limited exposure and unsatisfactory English communication skills of candidates, limited access to diverse skill sets, limited growth opportunities leading to employees migrating out, and a lack of talent in senior- and mid-level leadership. 

Jayesh insists that even if most of the candidates are from rural engineering colleges, the quality of education is not very inferior to many of the colleges in Hyderabad. He admits that finishing skills are at a lower level, especially when it comes to English communication. “But working for American companies, even if run by Indian nationals, brings them a lot of pride. There’s a hunger to improve and to contribute more,” he said. He mentioned that even graduates of Rajiv Gandhi University of Knowledge Technologies (RGUKT), many of whom are from low-income rural households, some of them from Scheduled Castes and Scheduled Tribes, are also getting placed in IT companies in tier-2 towns. “The feedback we get is that they are like diamonds, but unpolished,” he said. 

Infrastructure on the other hand hasn’t been as much of a problem as he expected, Lax said. “When we first considered the idea in 2017, we worried that power and the internet could be an issue. But that’s no longer the case. We waited to find a place in the heart of Khammam so that women feel safe coming to work for night shifts,” he said. 

Vamshi, whose Quadrant Resource recently opened its own Warangal office, also has offices in the US, Hyderabad, Bengaluru and Chennai. He said that while many people do prefer to work from metropolitan cities, Warangal is slowly becoming more urbanised with international schools and other upscale facilities coming up. “We understand that it’s a long-term plan,” he said. 

He said that middle and senior management for the Warangal office has to happen remotely from Hyderabad and Bengaluru, which can sometimes be difficult. 

The long run 

Vijay said that while IT job growth has been exponential in Telangana over the past couple of decades, it is now expected to plateau. But IT towers are also planned in Hyderabad in areas such as Malakpet and Kompally, to disperse the concentration of IT companies. 

The IT department hopes that the IT activity isn’t limited to the government’s IT towers, and is expanded by companies setting up their own campuses and eventually boosting the local economy. This has begun in Warangal, where major companies like Genpact, Cyient, Tech Mahindra, and LTIMindtree have already been set up. Other companies like Softpath and Vamshi’s Quadrant Resource too have now set up offices here. 

Jayesh said that while at some point, there would be limitations to scaling. “Right now, our IT policy goal is to create 60,000 jobs in the tier-2 locations within the next six years,” he said. 

“Expansion into more towns is completely demand-driven. We have received interest from a few more places, and we are now aggregating the demand because we need certain minimum numbers to build a tower. In some places, the demand is still at a very nascent stage,” he said. 

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