Firms fret bombings may undermine Indian IT hub

By Palash Kumar Reuters - Tuesday, August 28 10:55 am

HYDERABAD, India (Reuters) - Two bombings within three months that killed dozens in India's prominent IT city of Hyderabad have set off alarm bells for many companies who worry investor sentiment could start to sour.

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Last week, two bombs ripped through an amusement park and a small restaurant killing 40 people. No one claimed responsibility, but police suspect Islamic militants who were also blamed for bombing a mosque in the city in May.

While companies say investors for the moment are sitting tight, they worry business could turn elsewhere if the city, with a history of Muslim-Hindu tensions that appears to have made it a favoured target of militants, falls victim to more attacks.

"I can't deny there is a lot of concern," said B.V.R. Mohan Reddy, managing director of Infotech Enterprises Ltd, a mid-sized software services firm.

"Incidents of a sporadic nature may not have a major impact but if this becomes frequent, it will be a cause of major, major concern."

Hyderabad is one of India's biggest outsourcing centres with more than 150 companies, including Oracle and Google, operating there. Microsoft set up its first software development centre outside the United States in the city.

With pools of highly educated talent, Hyderabad grew up in the 1990s as a competitor to southern India's longstanding IT hub of Bangalore, as global outsourcing became a mainstay of Asia's third biggest economy.

IT exports from Andhra Pradesh state, of which Hyderabad is the capital, rose to some $4.5 billion (2.24 billion pounds) in the year ending March 2007 compared with $3.0 billion the previous year.

Highlighting its importance, both U.S. President George W. Bush and then President Bill Clinton have visited the city.

SECURITY CONCERNS

But this year security issues have risen to prominence.

Some companies say that while Indian businessmen may be hardened to decades of security concerns and political problems, foreign investors can be more fickle.

Shakti Sagar, managing director of ADP software company, said companies needed to restore investor confidence.

"It will certainly have an impact in terms of damage control," Sagar said.

"Some investors have expressed concern. We have been telling them these are stray incidents but for someone who has never travelled outside of the U.S., it certainly causes them concern."

Kiran Karnik, president of the National Association of Software and Service Companies, the IT industry lobby group, said the incident showed the need to beef-up security in the city.

"It is the second such incident in a short period," he said. "Although these incidents target the general public, the industry will also have to be aware of any security threat."

Police have pointed fingers at Islamic militant groups based in Pakistan and Bangladesh for last week's attacks with help from "sleeper cells" within the city, which has a roughly 30 percent Muslim population.

Both Islamabad and Dhaka have strongly denied any role and ridiculed India for rushing to conclusions without evidence.

But it is small comfort for companies, some who are now facing rising insurance costs because of the violence.

"The government is acting but if the frequency (of bomb attacks) increases, it will be trouble," Reddy said.

The U.S. embassy in Delhi urged U.S citizens to be cautious travelling to Hyderabad. But an embassy spokeswoman said the bombings would have no impact on plans to open a consulate general in the city.

EYEING THE MAINLAND

Having for years targeted Indian-ruled Kashmir, militants are now eyeing India's heartland, security experts say.

In recent years attacks have killed hundreds of people outside Kashmir, the deadliest including serial commuter train bombings in Mumbai last year, an India-Pakistan train blast this year and two market bombs in New Delhi in 2005.

A Western diplomat said foreign investors were watching the situation closely but it had not yet got to stage when they would consider pulling out or scaling back as a result.

"The bottom line is it would take a lot more than this to really shake them," the diplomat said.

Saugat Mukherjee, director of the state chapter of Confederation of Indian Industry, said India's sturdy economic growth would continue to spur the IT industry in Hyderabad.

"What has picked up in Hyderabad will sustain. What we feel is that these are stray incidents. India's economic growth has its own momentum," he said.

(Additional reporting by Simon Denyer and Alistair Scrutton in New Delhi, and Sumeet Chatterjee in Bangalore)