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Friday, Jun 13, 2003

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Little worry on outsourcing

THE INDIAN SOFTWARE AND IT-enabled services industry must feel relieved that the Government is determined to fight any market-access curbs that Europe or the US might seek to impose. The protectionist tendencies of these developed countries appear to be gathering strength with every passing week. Close on the heels of a Bill introduced in the US Congress to curb L1 (intra-company transfer) visas, the resolutions aimed at banning data processing contracts to low-cost countries introduced by four US States have triggered concerns about a negative near-term impact on outsourcing to India.

While these concerns merit serious attention, it may be prudent for the Government to refrain from any hard-line political posturing and, instead, work through the industry's apex association, Nasscom. Over the past six months or so, in the US, the H1B visa issue has acquired serious political overtones. The loss of employment opportunities for American professionals has led several unions and associations to clamour for a reduction in the H1B visas to a historic low of 65,000 from the current levels of 1,95,000. Nasscom is better placed to tackle these sensitive matters than the Government. Even in the past, economic logic and commercial considerations have consistently dictated the political choice of the US Congress. In advocating this cause, Nasscom has realised that too much lobbying is unlikely to take the industry far. Instead, it is doing the right thing by impressing on the US Congress the benefits of outsourcing. This strategy makes sense because legislators will realise eventually that when US firms have to play competitive economics in a globalised environment, the economic logic of outsourcing cannot be denied. Once a set of companies record higher profits on account of cost savings from outsourcing, it spurs others to jump onto this bandwagon to cut costs. And the virtuous cycle acquires a natural momentum of its own.

Since nearly 60 per cent of Fortune 500 companies have already outsourced work to India and substantial headway is also being made into the Global 1000 category, Nasscom can build an iron-clad case for continued outsourcing. Nasscom studies themselves show that the total benefit to the US economy from outsourcing was worth around $16.8 billion in 2003-04, nearly twice as much as the projected software exports of $8.5 billion that year. This effectively means that for every dollar outsourced to India, the US economy is earning two dollars. Even independent studies have shown that US-based multinationals have been the biggest beneficiaries of outsourcing work to India. Though there is growing resistance to the outsourcing trend among the technology workforce in the US, there is as yet no credible evidence or compelling argument that poses any threat to outsourcing to low-cost countries such as India.

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