IT industry's footprint looks set to expand beyond its existing homes.

Faced with a challenge from upstarts threatening to erode India's low-cost appeal, the government is planning to build 43 new information technology cities across the country to retain its top dog status in the business and to be in a position to tap the huge surge in demand for IT-enabled services over the next 10 years.

The move comes at a time when the rising infrastructure and employee costs in big cities is threatening to blunt India's crucial cost advantage.

While India has held on to its pre-eminent position, its IT and BPO companies are losing their global cost advantage with the emergence of countries like Vietnam and the Philippines, which offer similar services at cheaper rates and are threatening India's status as the world's back office.

As the allure of BPO jobs goes down and attrition rates go up, companies are increasingly finding it difficult to recruit quality employees in the big cities. Also of concern is infrastructure constraints in Bangalore, Gurgaon and elsewhere.

The plan to build brand new towns is designed to address some of these issues. It is felt that these new towns will provide a steady supply of workers besides being specifically geared towards the needs of the IT and BPO sectors.

The proposal, suggested by a high-level group on service sector, has been cleared by the Planning Commission. "The modalities for the ambitious plan will be finalized very soon," a source said.

According to the plan, each IT city will be set up in an area of more than 500 hectare. The cities will altogether generate employment for around 3.5 million people by 2018.

The proposal is to create self-contained satellite townships with commercial space for renting and a commensurate increase in residential accommodation, education, healthcare, retail and recreational facilities.

"Improvement in infrastructure is very important to ensure the continued competitiveness of IT and BPO industries," an official said while explaining the rationale behind the move.

At present, the major volume of IT-enabled services is concentrated in seven cities — Bangalore, Chennai, Mumbai, Hyderabad, Kolkata, Gurgaon and Noida. Government estimates point out that 95% of the IT and BPO service industry is in these cities, with around 36% of services concentrated in Bangalore alone.

According to officials, the IT and BPO business in the country is likely to grow by 2.5 times in the next 10 years. The growth cannot be absorbed in major cities.

As infrastructure in major cities is already under tremendous strain, the IT sector has started migrating to smaller cities. However, the volume of business in the IT sector likely to come to India is huge which even tier II & III towns are unlikely to handle, considering poor infrastructure.

Under the ambitious proposal, the government plans to shift 40% of the business to the upcoming 43 cities by 2018.

The new towns will be properly planned and laid out and endowed with modern infrastructure and good connectivity to the big cities and airports.

These townships will have residential and work areas with all essential services - water supply, power, civic amenities, health, education, transport and entertainment - to meet the civic and commercial needs of the workforce.

The Centre has sought the support of state governments in facilitating creation of these new towns. The proposal suggests that the towns will be developed by private players and state governments will ensure trunk services like electricity, water supply, sewage and drainage