Terrorism threatens Indian economy

The Indian IT sector is worried. In the last three months two bombings killed dozens in Hyderabad, one of India’s IT hubs, and many companies now worry that investor sentiment could start to sour. Police suspect that Islamic militants are behind the bombings. The city of Hyderabad has a a history of Muslim-Hindu tensions. Hyderabad is one of India’s biggest outsourcing centers with more than 150 companies, including Oracle and Google, operating there. Microsoft set up its first software development center outside the United States in the city. With pools of highly educated talent, Hyderabad grew up in the 1990s as a competitor to southern India’s longstanding IT hub of Bangalore, as global outsourcing became a mainstay of Asia’s third biggest economy. IT exports from Andhra Pradesh state, of which Hyderabad is the capital, rose to some $4.5 billion in the year ending March 2007 compared with $3.0 billion the previous year. Highlighting its importance, both George Bush and Bill Clinton have visited the city.

Beyond the potential damage to India’s IT sector, the spate of bombings in major Indian cities indicate that after decades of targeting Indian-ruled Kashmir, Islamic militants are now eyeing India’s heartland. In recent years attacks have killed hundreds of people outside Kashmir, the deadliest including serial commuter train bombings in Mumbai last year, an India-Pakistan train blast this year and two market bombs in New Delhi in 2005. Since 2004, the Times of India reported Monday, India has lost more lives to terrorism than any country other than Iraq.

During the past ten years India has been a magnet for high-tech and outsourcing companies. It may well now become a magnet for homeland security companies. Ajai Sahni, executive director of the Institute for Conflict Management, points out that India has invested dangerously little in its internal security apparatus. “India is one of the most under-policed states in the world,” he says. “The UN norm is for 222 police personnel for every 100,000 people. In India, it is 122 for 100,000. Moreover, rural policing has almost collapsed, so that those targeting cities are able to use rural bases without fear.”