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Bangalore, Feb. 25 The US President, Mr Barack Obama, might have made it clear that there would be no tax breaks for companies that ship jobs overseas, but the Indian IT industry is yet to believe work from its largest market could dry up.

The industry feels greater details of Obama’s directive will have to be studied before implications can be drawn.

“It is all statement at this moment. Mr Obama had earlier clearly indicated that the US would not take protectionist measures. We will have to wait and see,” said Mr V. Balakrishnan, Chief Financial Officer, Infosys Technologies.

He said it was too early to understand the implications and one would have to see the final fine print. “We will have to see what kinds of incentives are given to create jobs locally,” Mr Balakrishnan added.

IT and R&D services provider MindTree Ltd also said the company would have to wait for more details.

“It is too early to judge the impact. It is more to do with the buyer sentiment rather than the real impact on volumes,” said Mr S. Sabyasachi, founder of Mindplex Consulting.

No clarity yet

Analysts feel that though the US President will not directly try to stop off-shoring, doing away with tax benefits is a way of trying to create jobs locally. However, there is no clear idea here on the nature of the tax benefits that the US companies enjoy.

Hit by the economic crisis, the US has lost 2.6 million jobs in 2008, the highest ever in more than six decades. The US unemployment rate rose to7.6 per cent in January 2009, the highest since 1992.

“Some companies would try to strike a balance between off-shoring and doing the work domestically as a result of this,” said Mr Vinu. S.Kartha, Partner, Tholons Inc, an offshore advisory firm.

Nasscom view

“It is heartening to note that the US President has supported the need to ‘avoid protectionism’ in his speech,” the Natioanl Association of Software and Services Companies said in a statement.

“This is not the time for protectionism but for global collaboration, if the world is to come out of this economic downturn quickly. We hope that all other countries would support this and continue to be proponents of free trade. While supporting international trade, countries (regions, states) have been promoting local investment through tax incentives for job creation,” Nasscom added.

Endorsing Nasscom’s views, Mr Suresh Senapaty, Executive Director and CFO of Wipro said “policies of protectionism will only hinder the revival of world economy”.

Satyam Computer Services, which is facing the Rs 7,136-crore financial fraud, said the move woould have little impact on it. “Our exposure is not much when compared to that of our peers. We don’t want to comment much beyond this,” Mr T. Hari, Head of Marketing and Communications at Satyam, said.

The Hyderabad Software Exporters’ Association, with exports of Rs 26,122 crore in 2007-08, said it was in the process of understanding the implications of Mr Obama’s comments

Deeply concerned over Mr Obama’s statements, the Federation of Indian Chambers of Commerce and Industry said protectionist measures of any kind could deteriorate the global economic situation further.

“We would have to wait and see how the rules are framed and implemented. If significant tax incentives were taken away from US companies that outsource work to more cost effective locations, then Indian service providers would certainly feel the impact, as lesser work would be contracted out,” FICCI said.

FICCI noted that the decision to outsource is purely economic and that US companies will have to do their own cost benefit analysis before arriving at any results. “We see a case of a clear trade-off between greater efficiency and global competitiveness on one side, and immediate revenue gains in the near term from tax rebates and tax-breaks,” it said.

The PHDCCI President, Mr Satish Bagrodia, said, “Now, it appears that US is taking the lead in protectionism, which is against globalisation.”

Related Stories:
‘Impact of Obama’s action to set the tone’
IT sector watching out for greater clarity from US
‘Offshoring set to slow down’

(This article was published in the Business Line print edition dated February 26, 2009)
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