The Hindu Business Line : Fresh BPO investments may dry up, alerts Nasscom

INDIAN business process outsourcing (BPO) organisations face the possibility of a freeze on the flow of fresh captive outsourcing orders from MNCs. The trigger for it has been the recent Government notification that seeks to tax the profits earned by MNCs and foreign companies from outsourcing their core business process services to India.

Sounding the alarm bell on a possible freeze on fresh BPO investments in India by many MNCs, the National Association of Software and Services Companies (NASSCOM) plans to take up the issue and seek certain clarifications from the Government afresh on the notification.

Many foreign companies which were active in the Indian BPO market, especially those based in the US and UK, have put on hold their captive outsourcing programme in India, as, they feel, the notification is not clear on the definition of core and non-core services, apart from other issues.

"At least three major companies have informed me that they have put on hold transfer of captive BPO orders to India till they get a clear picture of the implications of the Government notification. There will be many more companies that would have postponed their fresh BPO investments in India," says Mr Kiran Karnik, Nasscom President.

Though vague in its content, the Government notification seeks to tax the profits of foreign parent companies that are generated as a result of outsourcing their core business process requirements to their captive units in India. However, the notification has exempted non-core BPO activities from the tax.

According to Mr Karnik, the notification has come at a time when the Indian BPO market is growing on a steady note. He was, however, confident that the Government would come out with a positive response in regard to the notification. This is especially so because the committee set up by the Government to review the notification had come out with a "positive recommendation from the point of view of the captive BPO industry."

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