India's new government accelerates reform

Fears that leftist parties supporting the new Indian government would scuttle the country's reform programme have receded.

Fears that leftist parties supporting the new Indian government would scuttle the country's reform programme have receded.

The new Congress party-led government has proposed raising the cap on foreign investment in telecoms and other key economic sectors. The proposal allows multinationals to own up to 74% rather than 49% of India's booming telecoms market.

The number of phone connections in India, both mobile and fixed-line, grew by 39% in the 12 months to May, according to a recent survey by the Indian ministry for communications and IT.

Palaniappan Chidambaram, India's finance minister, said liberalising investment controls in sectors like telecoms, insurance and aviation was designed to raise the vast amount of capital required to develop those industries.

India's IT sector is also expected to benefit from the removal of excise duty on computers, which currently stands at 8%. Abolishing the excise would improve IT penetration in the country, according to Vinnie Mehta, executive director of Indian trade body the Manufacturers Association of Information Technology (MAIT).

MAIT figures show that  the previous government's tax sweeteners for the computer industry, such as halving excise duty to 8%, helped lower prices and boost PC sales. In the financial year to 31 March, India's desktop PC market reached three million devices - 32% more than the previous year.

India is also complying with the World Trade Organization's IT agreement by lifting customs duty on IT imports by 2005.

The budget focuses on incentives for agriculture to stimulate employment and alleviate rural poverty. Many believe that neglecting these areas cost the previous Bharatiya Janata government the election.

The new government plans to continue its predecessor's industrial reforms by, for example, establishing an investment commission to invite domestic and foreign businesses to invest in India.

John Ribeiro writes for IDG News Service

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