Elections Bring Uncertainty For India's Tech Sector

BANGALORE, India -- The electoral sea change in India last week not only brought down the ruling government but also two of the country's tech-savvy ministers from the southern states of Andhra Pradesh and Karnataka. Each had cultivated close ties to the IT community here.

The largest democratic elections on earth, involving about 370 million voters, brought down the national government headed by Prime Minister Atal Bihari Vajpayee. It also resulted in the ouster of Andhra Pradesh's Chandrababu Naidu and S.M. Krishna of Karnataka. Bangalore is its capital.

Recent regional elections in the central Indian state of Madhya Pradesh also resulted in the ouster of another chief minister with a tech-savvy image.Andhra Pradesh and Karnataka states have been in the forefront of attracting overseas investments for the global high-tech industry. Microsoft and Oracle, among others have development centers in Hyderabad, the capital of Andhra Pradesh, while Intel, IBM and Texas Instruments all have development centers here.

(The 2004 elections were conducted entirely with electronic ballots using millions of electronic voting machines made here. Exports of the machines is likely.)

Chandrababu Naidu was widely seen as one high-tech's biggest backers in India. He was often referred to as the "laptop chief minister," given his penchant for carrying one everywhere he traveled. However, that imaged rubbed rural voters the wtong way. Given that Indian villages account for most of the votes, Naidu's image ultimately sealed his political demise, observers said.His Karnataka counterpart, S.M. Krishna, was also viewed as a friend of high-tech companies here. Krishna lost by a narrower margin in regional elections.

The election showed that in India, with a population of over 1 billion and where PC and telephone penetration and Internet connectivity ratios are negligible, politicians cultivating a tech-savvy image have not endeared themselves to voters. As in all the previous national and regional elections since the country's independence in 1947, the issues that continue to count with voters are food, water, electricity, roads and law and order. Unless they are seen as being addressed by political leaders, voters hand them resounding defeats. Last week's vote was no exception.

Many voters view pro-technology politicians as unaware of the struggles of everyday life here. Hence, these leaders are widely seen as compounding the problems of India's vast population of poor, who vote in large numbers.

India's burgeoning software business is seen as benefiting only a small part of the urban population and the wealthy.

The entry of Communist parties into the government has already sent the stockmarket into a nosedive, given their opposition to disinvestment in government firms and their traditional unfriendly stance on foreign investment. The Communists instead favor only foreign investment in "priority" areas such as infrastucture and healthcare. The parties also advocate foreign direct investment rather than for foreign institutional investmentsCMC Ltd., once a government-owned software company, was taken over by the Tata Group as part of the previous government's disinvestment process. Observers said it is hard to imagine more disinvestment by the government if, as expected, the Communists join a government headed by Sonia Gandhi, the Italian-born leader of the Congress Party.

The software industry had been seeking a roll back of government labor policies that would enable companies to more easily hire and fire workers, depending on the state of the industry. Indian laws currently make it difficult to fire workers, and software companies say need to be able to hire and fire to survive.

That seems unlikely under a coaltion government headed by the Congress Party, which won the largest number of seats, but still needs Communist parties to form the government.

Most technology companies believe they can weather the current political storm. "We are certain that the new government at the [political] center will continue the excellent support to this sector that we have received in the past, both in terms of infrastructure and favorable policies," said Kiran Karnik, president of the National Association of Software and Service Companies.

"The IT industry has reached a fairly self-reliant stage now and will continue its growth," said Nandan Nilekani, CEO, president and managing director of Infosys Technologies Ltd.Unlike the software industry which has reached a certain stature and size, India's hardware industry will still be looking to the government to boost its fortunes. Though the previous governments had recently cut taxes and duties on computers and related equipment, the measures have failed to boost the hardware industry.

As always, the hardware sector continues to look to the government for help. "We expect the new government to continue to support the IT industry and drive new initiatives to encourage PC penetration in the country," said Sanjeev Keskar, country manager for AMD Corp's Far East India Ltd. unit.