Bengaluru at a crossroads as urban decay threatens its IT-driven growth

United States President Donald Trump’s recent announcement on H1-B visa rules has shattered the American dream for many in India. Amazon, Infosys, Cognizant, and Google are among the top companies that benefit from these visas, and India accounts for nearly 70 per cent of all H1-B holders each year. With Silicon Valley’s doors closing to many Indian professionals, can India’s own Silicon Valley — Bengaluru — step in to fulfil that dream? The answer is yes, provided the city can overcome its pressing urban challenges.

 

With a gross domestic product (GDP) of approximately $100 billion, the economy of Bengaluru is similar in size to that of Luxembourg and Dubai. Between 2000 and 2018, it registered a real GDP compound annual growth rate (CAGR) of 10 per cent, compared to 6 per cent growth for the rest of Karnataka. However, the gap in the pace of growth has narrowed in the last five years, with Bengaluru’s growth slowing to 6.6 per cent between 2018 and 2023, and the rest of the state growing at 4.9 per cent. Significant urban infrastructure challenges like water scarcity, traffic congestion, and lack of cleanliness that the city has been experiencing are likely to have played a major role in this deceleration.

 

The primary driver of Bengaluru’s economic success is the specialisation in the information and communications technology (ICT) sector. Bengaluru’s share in Karnataka’s GDP grew from 25 per cent in 2000 to 38 per cent by 2018. This increase was almost entirely powered by the ICT industry, whose contribution to Bengaluru’s GDP rose from 20 per cent to 53 per cent during the same period. The city has a pronounced national role too. India accounts for 59 per cent of the global outsourcing market, and Bengaluru accounts for a third of India’s outsourced service industry.

 

Not just a hub for the outsourced services, Bengaluru accounts for the highest number of unicorns in India at 47, which is higher than 42 for London, and more than 10 times its peers like Hyderabad and Chennai. Despite its national dominance, Bengaluru’s economic output is still relatively small on a global scale. Its $100 billion GDP is a fraction of the biggest service centres, such as London’s trillion-dollar economy or $500 billion GDP each for Shenzhen and Seattle. This indicates significant room for future growth but also exposes a key vulnerability. The most critical asset of Bengaluru’s primary industry is its highly educated workforce. And unlike industries with heavy capital investments in factories, this talent is highly mobile. A deteriorating quality of life could therefore lead to a migration of human capital, directly impacting the city’s growth engine.

 

The city’s delivery of key urban services seems to be in decline. For example, a 2022 report from the Central Groundwater Board classified Bengaluru’s groundwater as “over-exploited”. The city’s solid waste management performance has also stagnated, its Swachh Survekshan Score stagnating at 58-59 per cent between 2016 and 2023, while Hyderabad, a competitor tech hub, saw its score jump from 68 per cent to 91 per cent during the same period. The traffic congestion in Bengaluru is a significant productivity drain. In 2024, commuters in Bengaluru spent an average of 117 hours annually on a 10-km peak-hour commute, significantly more than Hyderabad’s 85 hours.

 

This sub-optimal delivery of urban services stems from a combination of governance, planning, and funding issues that Bengaluru is grappling with. Bengaluru’s municipal corporation’s, Bruhat Bengaluru Mahanagara Palike (BBMP), term ended in 2020, but elections have not been held since. The city is currently run by state-appointed executives, leading to a potential lack of accountability. On the planning front, using the Janaagraha ASICs 2023 database, we find that Karnataka lacks state-level mandates that compel cities to address critical sectors like affordable housing, health, education, and sanitation — mandates that are present in other states like Telangana, particularly for Hyderabad. Financially, BBMP’s revenue expenditure for FY24 was only one-fourth of Hyderabad’s, despite serving a population 25 per cent larger, highlighting low funding and insufficient power devolution to the local government. The case of Mumbai offers a pertinent lesson for the southern giant. Mumbai Urban Agglomeration (UA), despite its strong financial services legacy, grew at a tepid 6.6 per cent between 2000 and 2023. Inadequate delivery of urban services has played a big role in this lacklustre performance. The Island city of Mumbai has 30-40 per cent less road density compared to Delhi, coupled with some of the costliest real estates globally, making it extremely expensive to do business or live in the maximum city. The ongoing infrastructure push in Mumbai is in response to these shortcomings.

 

Bengaluru is at a critical juncture, where its economic model, reliant on attracting and retaining skilled professionals, is directly threatened by a measurable decline in urban quality of life. Addressing these challenges will require collaborative efforts between state and city governments on planning and power devolution, coupled with a keen focus on bridging the funding gap for sustainable urban growth. The turbulence caused by changes to the H1-B programme presents a golden opportunity — if the governments take notice and do the needful.

 

The authors are, respectively, senior fellow and associate fellow, Centre for Social and Economic Progress . The views are personal