In a separate incident, two Taliban were killed when government troops attacked a Taliban hideout in the volatile southern province of Helmand, a commander said.
Violence and lawlessness across much of the Afghan south has crippled development, and the main task of thousands of NATO troops due soon to move into the region will be to ensure sufficient security for reconstruction.
''We've started search operations in areas where we've received intelligence reports the engineer might be,'' said Gulab Shah Alikhail, spokesman for the governor of the southern province of Zabul.
The Indian and his driver were kidnapped after gunmen stopped their car on a main road in Zabul yesterday.
The Taliban claimed to have kidnapped the two and a spokesman for the militants said today they were safe.
''Our leadership will decide their fate,'' the spokesman, Qari Mohammad Yousuf, said by telephone from an undisclosed location.
The Indian had been contracted to work for the Afghan telecommunications company Roshan, a company official said.
''We're working with the relevant authorities for his release,'' said the official, who declined to identify the Indian.
India was collaborating with Afghanistan on the kidnap, an Indian government official said in New Delhi.
SECURITY WORRIES Militants have kidnapped aid agency staff and foreign company workers, who the Taliban say are supporting the Western-backed government. Some have been released but several, including Turks and Indians, have been killed.
Security is a major worry in Afghanistan. Taliban attacks are mounting as NATO prepares to double its peacekeeping operations while Washington hopes to cut its forces there by several thousand.
About 3,500 British troops are going to be stationed in Helmand province, where the two Taliban were killed in an hour-long clash, said General Rahmatullah Raufi.
The Taliban destroyed a weapons cache before leaving their dead and fleeing into mountains, he said.
Unknown attackers burnt down two schools in the generally peaceful northern province of Sar-i-Pul, officials there said.
Taliban and other militants have attacked many schools in their campaign against the government and its efforts to promote education.
US and Afghan opposition forces drove the Taliban from power in late 2001 after the Islamists refused to hand over Osama bin Laden, architect of the September. 11 attacks on US cities.
Taliban and other militants have waged an insurgency against US-led foreign troops and government forces since then.
The level of violence in some parts of the Afghan south and east is the worst it has been since 2001.
REUTERS PG PM1652