Mumbai: Indian software firms are shrugging off proposed legislative measures in the US that are aimed at discouraging offshoring of jobs—the mainstay of the Indian IT industry, which derives as much as 60% of its revenue by delivering services to clients in that country.
India is expected to close the year to 31 March with $49.7 billion (Rs2.3 trillion) in revenue from export of IT and back-office services. The industry lobby, Nasscom, says growth in exports for the next financial year would be between 13% and15%. India has a 12% share in the outsourcing market and a 51% market share in the offshored services market.
Still, neither Nasscom nor large Indian firms are willing to take any chances and have employed specialized lobbying firms to highlight to the US legislators the benefits of outsourcing and offshoring.
An executive at India’s largest software services firm, Tata Consultancy Services Ltd (TCS), said that the proposed legislation, which will withdraw tax incentives to companies that offshore jobs, will not have any impact.
“I don’t think so,” said TCS chief executive N. Chandrasekaran. He added that TCS would be monitoring the situation closely and develop its own strategy.
The anti-outsourcing and offshoring law, in its present form, pertains to the operations of overseas subsidiaries of US companies and the profits they make overseas, said Nasscom president Som Mittal. The Obama administration argues that because the US tax laws offer firms incentives to invest and keep income abroad, American companies tend to reinvest their earnings in foreign locations such as India—expanding there, and depriving Americans of jobs and the US of tax income.
The business logic of outsourcing outweighs tax disincentives, added Mittal. “Tax rebate does not change the fundamental advantages gained by outsourcing and off-shoring,” he added referring to the cost arbitrage that off-shoring provides. “Business sense will prevail, not political rhetoric.”
Surjeet Singh, the chief financial officer of Mumbai-based IT outsourcer Patni Computers Ltd, seconded Mittal’s opinion and said the proposed legislation is hardly a threat and that the current outsourcing model is mature and can handle minor bumps such as a tax rebate being withdrawn.
“Does it fundamentally introduce a threat to the Indian IT companies? No. If there is a new tax factor introduced, then the model will adjust to the new regime, if there is one, but ultimately the way things are done will not change,” Singh told Mint.
New Jersey-based Cognizant Technology Solutions Corp., which does most of its work for Western clients out of India said the proposed legal measures will only reduce the competitiveness of the US firms.
“US companies are likely to only increase the volume of their outsourcing and offshoring activities as they try to reduce their overall cost structure”, said the firm’s vice-chairman Lakshmi Narayanan.
IBM, which employees at least 70,000 people in India for delivering services globally, declined to comment saying it wouldn’t respond because the issue was “political”.