US President Barack Obama’s visit to India in November this year can be considered as historic in many sense – the hyphen between India-US-Pakistan relations is slowly changing, the markets are booming in India, a Democrat President has more public support in India than Republican and most importantly, India is constantly opening up sectors for foreign players to enter. All this may not be considered as a win-win situation for both countries, just as the latest controversy over outsourcing ban in Ohio state.
What is worse is that India can do nothing other than wringing its hands in despair, as the legal options open for Indian companies are very little. The Commerce Ministry recently lodged a protest against the US state of Ohio when it banned outsourcing jobs to countries like India. The dynamics of real life is much different than stipulated by legal opinion and policy-making, as American companies given to preserving the shareholder interests, would any which way come to India to get cheap and highly qualified talent.
Some of the statements made by American companies after the outsourcing ban controversy blew up, suggest that when the dust settles we will see nothing has changed at the ground level. The election pressures could be telling on the polity in the US which give rise to such calls for change in policy regarding outsourcing jobs, but in the end money will make the mare go.
Also, India has not been a signatory to the Government Procurement Agreement (GPA) of the World Trade Organisation, and hence India will not be in a position to take the US government to task at the world body. But Commerce Minister Anand Sharma made it clear that he would raise the issue of banning outsourcing by the Ohio state during the trade policy forum meetings. The probability is that the issue can be used as a leverage during negotiations with the US in other matters.
Adding fuel to fire was the US President’s statement that tax breaks should not go to companies which are creating jobs abroad and not in the US. Obama may be playing to the gallery, as politicians are wont to do when elections are approaching, but the US firms outsourcing jobs to India and its ilk would weigh the pros and cons in terms of savings through tax benefits and cost of talent and operations.
More than US policy changes regarding outsourcing Indian software firms, BPOs and KPOs are concerned with the way China has been making strides in educating its youth to take away these lucrative jobs from India. There is a strong feeling that if India does not perk up its act in education levels and bring down the talent cost even further, China would quietly encroach on these jobs as successfully as it has been in manufacturing sectors.
But President Obama’s words that would keep ringing again and again during his visit to India this November would be: “One of the keys to job creation is to encourage companies to invest more in the United States. But for years, our tax code has actually given billions of dollars in tax breaks, encouraging companies to create jobs and profits in other countries… I want to change that. Instead of tax loopholes that incentivise investments in overseas jobs, I am proposing a more generous permanent extension of tax credit that goes to companies for all the research and innovation they do right here in America”. There lies the dichotomy. American corporates nor their shareholders care about job creation or how tax sops benefit the wrong parties. The only overriding feature of American capitalism is to ensure growth in top-line as well as bottom-line. And India inadvertently could hugely benefit from that.