Indian companies may not feel much effect of the American move to ban sub-contracting government work to other countries, but experts say that if fears related to outsourcing are not resolved urgently, it has the potential to become a major irritant for the industry in the long run.
The business impact of such a move on India's nascent but fast-growing outsourcing service provider industry will be very small, but it will alter the economic and political fundamentals in ties between the United States and India, those in the business say.
"The passage of the federal law barring outsourcing of US government contracts to companies in India and other nations by the US Senate is unfortunate and unwarranted. Such anti-liberalisation measures, when adopted by developed countries, will lead to greater protectionism in other sectors, thus impacting global trade flows," says Anand Mahindra, president, Confederation of Indian Industry.
"India and the US have been steadily deepening their economic and strategic ties. Therefore, this law can act as a speed-breaker on the road to closer ties," Mahindra adds.
Elaborating on the economic and political implications of the Appropriation Bill passed by the US Senate, Kiran Karnik, president, National Association of Software and Service Companies, says: "The business impact of such a bill on the Indian IT industry will not be very significant."
"The share of US federal government contracts in exports of IT software and services from India is less than 2 per cent, but such a bill is not in keeping with the increasing globalisation of trade and is contrary to the spirit of free trade being promoted by the WTO and long espoused by the United States," says Karnik.
Industry sources say studies on the BPO sector have shown that the company that outsources gains much more than the company to which it is outsourcing.
According to a recent study by McKinsey, for every one-dollar job outsourced by the US, the American economy recovers $1.14 out of the $1.49 value created for the global economy. The share of developing countries in this trade in services is only $0.35.
"In this particular case since the Senate ban is on US government contracts, the ultimate loser is the American taxpayer who will now pay more for government services. Outsourcing is a win-win situation and should not be viewed otherwise," says Mahindra.
Experts say companies which have outsourced to India have realised it is not just costs that have been attractive but also the quality of work and the productivity of the process agents have been far superior.
About the fears that this move by US is likely to have an impact on various European countries, which are already skeptical about outsourcing, Karnik says: "Indian industry representatives and its allies in the US and around the world are constantly engaged in a process of sharing information and credible third party research on the win-win nature of offshoring."
"We are confident that not only companies and governments, but also media and people around the world will recognise the benefits of outsourcing," Karnik says.
To counter the effect of any other such legislation, industry sources advocate a two-pronged strategy to counter any negative impact on the domestic industry.
"To begin with, efforts must be made to address all the concerned issues in a transparent manner and allay all fears concerning outsourcing.
"Besides, Indian industry should not depend on business from any particular country. Rather, efforts must be made to diversify business by looking at alternative markets in European and South-East Asian countries," sources say.
