India upgrading data protection laws to encourage outsourcing

Currently, the US is the biggest investor in Indian IT-enabled services, with major IT players such as IBM and Accenture taking advantage of India's cheap labour costs.

According to Reuters, software engineers with two years experience in India are being paid about one-fifth of an equivalent US employee – around 25,000 rupees per month, or $533.

However, European firms are severely restricted in terms of the Data Protection Directive of 1995 as to what data can be transferred or stored in countries without equivalent rules and enforcement procedures. And question marks remain over the security of the systems and policies used in developing countries.

In the US too, there is unease as to data security. The states of New Jersey, Maryland, Connecticut and Washington, are now considering adopting legislation to prevent the transmission of data to developing nations.

Accordingly, the Indian government has been urged to provide the EU and US with the reassurance they need. An Act is being drafted to tighten India's data protection regime.

In a recent interview with Indian newspaper The Financial Express, Kiran Karnik, the president of the National Association of Software and Service Companies (NASSCOM) said, "The threat from EU is greater than it is from the US, and this Act will help us retain our position in the EU markets."

He explained, "We see the ban on outsourcing and visa-related allegations against software companies as a threat faced by the developed countries on the employment front. However, the cost benefits offered by [India] are immense and outsourcing is on the rise."

The Indian Ministry of Information Technology and NASSCOM are preparing the draft legislation with a view to it coming into effect within a year.