India budget allays fears about IT reforms

The Indian government’s budget, introduced Thursday in Parliament, belies fears that leftist parties supporting the new government led by the Congress Party would scuttle the country’s reform program.

The new government proposed a hike in the foreign investment allowed in certain key economic sectors, including telecommunications. The proposal calls for raising the foreign direct investment (FDI) cap in the telecommunications sector from 49 per cent to 74 per cent, providing multinational companies an opportunity to invest in India’s booming telecom services market.

The number of telephone connections in India, both mobile and fixed line, grew by 39 per cent in the year as of May 31, according to a recent survey by the Indian ministry for communications and information technology. FDI rule liberalization in sectors like telecom, insurance and aviation are designed to raise the vast amount of capital required for the development of these sectors, said Palaniappan Chidambaram, India’s finance minister in his budget speech.

India’s information technology sector is also expected to benefit from a relaxation of regulations, including the removal of excise duty on computers, which stands at eight per cent. Removing the excise duty on computers will improve IT penetration in the country, according to Vinnie Mehta, executive director of the Delhi-based Manufacturers Association of Information Technology (MAIT), which represents the hardware, training and research and development services sectors of India’s IT industry.

Similar computer industry tax cuts by the previous government, such as decreasing the excise duty from 16 per cent to eight per cent, helped lower prices and boost the country’s PC sales, according to MAIT. In the fiscal year to March 31, the desktop PC market grew by 32 per cent over the previous fiscal year to 3.03 million units, according to MAIT.

India is also complying with the World Trade Organization’s Information Technology Agreement, and eliminating customs duty on information technology imports by 2005, Chidambaram announced.

The new budget focuses on agriculture incentives, generating employment and improving the rural poverty. Many believe that the previous government, led by the Bharatiya Janata Party, neglected these areas and resulted in their losing to the Congress Party’s coalition. However, the new government has indicated that it plans to continue its predecessors’ industrial reform programs. The government, for example, is establishing an Investment Commission “that will discuss with and invite domestic and foreign businesses to invest in India.”