Politics over business

Rahul Sachitanand        Print Edition: Nov 14, 2010

Elections in the United States have traditionally made the Indian tech and back office industry jittery. Even by those hyperventilating standards, the current backlash against outsourcing is an overdose.

With Congressional mid-term elections in the US scheduled for November 2 and politics getting precedence over business, it is bad news for India's $60 billion outsourcing industry, which gets around 70 per cent of its business from North American customers.

A series of moves against outsourcing and offshoring, mainly by Democrat lawmakers, has many companies concerned. First, the state of Ohio banned outsourcing of government-funded projects in August 2010. A month later, Democrats tried, albeit unsuccessfully, to introduce the Creating American Jobs and End Offshoring Act, in Congress. It aims at preventing US companies from deferring taxes on income earned overseas.

While India Inc. may have survived this scare, experts say that, in an election year, there may be many more air pockets ahead. Some American politicians are pandering to uninformed segments of their electorate, says Vivek Wadhwa, Senior Research Associate with the Labor and Worklife Program at Harvard Law School. "What the American public doesn't realise is what is at stake with the current protectionist sentiment: American companies need the cost advantage that outsourcing provides them," says he. "If protectionists try to restrict this, they will only hurt American industry."

It is not only tax breaks that are being leveraged by hawkish lawmakers in a bid to halt or at least slow down outsourcing and offshoring. In the past, legislators have tried to turn their anger on H-1B visas, a category predominantly used by outsourcers to bring in people from countries such as India to the United States. Iowa Senator Chuck Grassley had argued that these visas were being misused to displace American workers with cheaper immigrants. Movements such as the Tea Party, too, are on the rise, with the loosely-organised coalition's numbers being boosted by hundreds of laid off workers.

Indian information technology companies are critical of these anti-trade moves. "Immigration reforms need to go hand-in-hand with education reforms, as the US is not producing enough science and technology professionals," says R. Chandrasekaran, Managing Director of Cognizant. "The more expensive or difficult it is to bring people into the US, the more firms will be incentivised to move work globally." The anti-free trade moves will harm the US interests in the long term, predicts Wipro Technologies' joint CEO Girish Paranjpe.

While Indian outsourcers have heaved a sigh of relief with the defeat of the Creating American Jobs and End Offshoring Act, even more acerbic attacks are expected in the months ahead. The mood is very negative, says Wadhwa, despite the fact that the leading American technology companies get most of their revenues from abroad. "Intel gets 72 per cent of its revenues from abroad, H-P 67 per cent, and IBM 66 per cent," he says. But popular sentiment does not recognise that "American industry depends on foreign markets to continue creating employment", Wadhwa adds.

With US unemployment still high at 9.6 per cent and sentiment being key in politics, the pressures of local politics may triumph over the needs of big business.

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