Will Obama’s proposed withdrawal of tax incentives to outsourcing companies impact India?

February 11, 2010

The Indian outsourcing industry does not seem to think so. As a matter of fact they are quite sanguine that it will be business as usual for Indian companies as they feel that US companies will continue to find outsourcing to India cheaper for their businesses. They are actually willing to concede that Obama may have had to resort to these measures more as a symbol of his solidarity with the people who have lost jobs in the current difficult times and also to shore up his slipping popularity ratings.

The $60 billion outsourcing industry in India sees beyond the rhetoric of Obama, something which he has resorted to earlier. However they feel that while he talks of giving a fillip to American exports, he has to be conscious that this will to a large extent be made possible by keeping costs low and curtailing out sourcing is not going to aid in that. Therefore any legislation that his government might introduce will have to be quite circumspect in light of the above.

As a matter of fact there is complete understanding of Obama’s compulsions given the similar pattern of behavior Indian politicians display when under pressure from their constituencies. A classic case was when Mamta Banerjee derailed he Tata’s small car project in West Bengal. In that  West Bengal’s loss was Gujarat’s gain. The industry here fully understands that Obama cannot follow through with his populist agenda beyond a certain point because that would impact American competitiveness in the global economy, especially once the recovery starts.

The Indian government however has moved to the defense of its outsourcing industry decrying what it regards as a protectionist move by the. According to the Indian finance minister country specific solutions would do no body US government any good. Apparently about a 1ooo US companies who outsource to India will feel the pinch of the proposed legislation when it comes to fruition. Quite a few of his own party men the  Democrats are against the move, feeling that in case the tax breaks were done away with the impacted countries would ship the jobs overseas rather than use American workers at a much higher price.

All in all the confident stance of the Indian BPO industry is understandable, as they are pretty sure that if the US administration were to seriously attempt creating such legislation, they would have minimal or no impact on the India outsourcing industry. It would impact the bottom lines of those America companies that made money by outsourcing to India. Moreover hiring local people would continue to up the cost and negatively impact US overseas, which in turn would cause much bigger job losses than the current outsourcing to India causes.

The US which showed the way in outsourcing, now stands to lose out to firms in other regions in so far as outsourcing is concerned. It can ill afford this loss of leadership, especially when the world economy revives and there will be a scramble for market share.


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