The Hindu Business Line : Goodbye and keep out

That's what the US seems to be telling Indian business process workers, whom it sees as grabbing American jobs. While that's bad enough, what could be the further impact?

SOMETIMES, the worst fears have a way of coming true and this came to haunt the Indian software industry recently . The legislation passed by the US Senate to ban outsourcing of Government contracts to offshore locations may not have an adverse impact on revenues of the Indian software industry in the near term.

Currently, this bill awaits the consent of the US President. According to National Association of software and services Companies (Nasscom), the near term business impact will be insignificant, as the Federal Government contracts account for only 2 per cent of the total software exports from India. Secondly, this bill is applicable only up to September 2004 and covers two Government departments — treasury and transportation. These protectionist signals emerging from the US economy, if extended to other areas, may begin to hurt Indian software in the medium term. In the past, in any clash between economic logic and emotional arguments, the former has consistently been sacrificed at the altar of the later. As this also happens to be an election year in the US, the emotional appeal of loss of jobs has the potential to throw up a few surprises over the next few months. The potential fallout of this development could be:

Spur US States to act: Since this bill has been passed at the Federal level, this may embolden eight State Legislatures in the US such as Indiana, Michigan, New Jersey and North Carolina also to impose outsourcing curbs. After all, these States also have outstanding bills, which are awaiting the approval, some at the Senate and others at the House level. It may be recalled that in end-November, the Indiana State in the US had cancelled a $15.2 million contract for unemployment insurance claims processing bagged by Tata Consultancy Services. Since emotional reasons such as loss of jobs are driving these xenophobic decisions, it may not be unrealistic to assume that these states are only awaiting the right opportunity to convert these bills into law.

Signals for Europe: These attempts to restrict outsourcing sends out the wrong signals to European countries. Companies in Europe such as Germany or Britain, in both the public and private sector, have been slow in exploiting the labour arbitrage benefits embedded in offshoring. Since the opposition to these attempts have also been greater in these countries, taking the cue from the US, it may be easier for them to clam up on outsourcing. Even if all these outsourcing curbs are confined only to the government contracts, it will still amount to a reasonable shrinkage of the global outsourcing pie for the Indian software and IT-enabled services industry.

Shifting base to visa: It is unlikely that the US Government may be merely satisfied with imposing outsourcing curbs only on Government contracts. Since October 1, 2003, the annual H1B visa quota has been scaled down to 65,000 (from 195,000 earlier). But this may not satisfy the US legislators as they have claimed in the past that loopholes still exist in the L1 visa (intra company transfer) category. The battle is likely to shift towards these visas.

A bill introduced by Congressman John Mica of Florida in the US House of Representatives in June is already awaiting the approval of the Congress. Any attempts by the US political establishment to either impose a ceiling on the number of L1 visas introduced or restricting its use for specific purposes will affect the Indian software industry. More so, as this remains the only flexible route available currently to the Indian companies to send people onsite without too many restrictions.

Need for a global debate

Recently, senior politicians, bureaucrats and industry captains for blowing the fears of an outsourcing backlash out of proportion cautioned the Indian business media. But latest developments show that unless the media becomes the rallying point for constructive debate on the effects of globalisation of "white collar work", the baneful effects of "protectionism" will rear their head. India can no longer afford to sit at the sidelines of the globalisation debate. Going forward, India (along with other Asian countries) will have to play a key role in International forums such as the recently concluded World Economic Forum at Davos to ensure that any attempts at protectionism by the developed countries are quelled at an early stage. In this sensitive issue, economic logic favouring outsourcing alone may not win the battle for India.

maverick@thehindu.co.in

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