Rigid India stifles IT investments - investment taxation hurts information technology investments - Brief Article

Business Asia, April 14, 2000

K.B. Chandrasekhar sold shares in his Santa Clara, California-based Web site management company, Exodus Communications Inc, for US$95 million this month, and he has raised US$30 million to start another Internet company.

Yet as Chandrasekhar and other native Indians in Silicon Valley try to plough their US gains into the technology industry back home, they are colliding with the country's rigid investment rules.

"India could be a hi-tech superpower," said Chandrasekhar, who has kept his Indian citizenship. "It already has the people. What it needs is the risk capital. We can provide that if the government lets us."

With that lament, these prosperous Indians join US companies like Enron Corp and AT&T Corp in complaining that India's government is standing in the way of investments that are needed in the impoverished country of I billion people.

Money from Indians in Silicon Valley and elsewhere could boost India's US$5 billion software industry, in part by keeping talented engineers from fleeing to US companies.

US companies from Microsoft to Texas Instruments to International Business Machines (IBM) have set up production offices in India, taking advantage of the cheap wages and plentiful engineers.

The recent Indian budget didn't do enough to cut regulations that limit how venture funds can invest, stop double-taxing money in those funds or allow foreigners and state-owned banks to make investments, warn Chandrasekhar and others.

More than 100 Indian Silicon Valley entrepreneurs, who have formed a group called IndusEntrepreneurs, say they are ready to pour billions of dollars into startup Indian companies, compared with the total of US$300 million in venture capital during the last four years.

The government aims to push software industry revenue to US$50 billion a year by 2008. To reach that target, New Delhi acknowledges it must attract investors willing to take risks on small companies just starting out.

* India's fashion success, page 19.