The Hindu Business Line : US Bill `may hurt Indian IT sector in the long run'

THE move by the US Senate to ban sub-contracting Federal Government work to other countries may feel like a pinprick now, but has the potential to create a bigger pain in the long run to the Indian software and services industry, experts said.

The industry fears that the move by the Federal Government to curb offshoring of its projects would deny a multi-billion dollar business opportunity for Indian companies and could have a spill-over impact on private American companies and influence their offshoring decisions in the future.

In the first-ever attempt at the Federal level, the Senate approved on Friday a Bill that seeks to prohibit private sector contractors from offshoring their Government projects, triggering dismay and protests within Indian IT industry.

The measure, sponsored by Republican Senator, Mr George Voinovich, was incorporated in the $328-billion spending Bill for fiscal 2004, and will be in effect till September or the end of the financial year.

Under this measure, companies which have bagged Government projects cannot sub-contract part of such work to vendors in other countries for cutting costs.

"This is the first such Bill by the Federal Government. So it is a matter of concern," said Mr Kiran Karnik, President, National Association of Software and Service Companies (Nasscom).

In the past, a number of US States had introduced Bills that seek to stop outsourcing work to countries such as India in order to protect local jobs. None of them has become a law yet, but the latest development at the Federal level could fuel the protectionist sentiments at the State levels.

Mr Karnik said the passage of such Bills would shut off a huge opportunity for Indian companies to get projects from the US Government, which spends billions of dollars on technology every year.

The current impact of such a move on Indian IT industry will be small, as the share of Federal Government contracts in exports of IT software and services from India, which stood at $9.6 billion last fiscal, is less than two per cent. "But the potential for federal outsourcing is very big," he said.

According to Mr Ganesh Natarajan, Deputy Chairman and Managing Director of Zensar Technologies, the Federal Government's move has the potential to affect `the sentiments of the private sector' towards offshoring.

"Companies such as EDS and IBM Global Services will not outsource their Government projects to their centres in India," he pointed out. "In the long-run, this will have a negative impact."

The Confederation of Indian Industry (CII) termed the Bill as "unfortunate and unwarranted" and said such anti-liberalisation measures adopted by developed countries, particularly the US, will lead to greater protectionism in other sectors and impact global trade flows.

"India and the US have been steadily deepening their economic and strategic ties. Therefore, the passage of this law will be a speed-breaker on the road to closer ties," CII said.

According to Electronics and Computer Software Export Promotion Council, the new legislation would send wrong signals to the "globalisation efforts, particularly of countries like India, which have undertaken a number of liberalisation measures in a short span of time garnering political will to push ahead the reform process."

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