Protectionist US moves worry Indian tech firms

Protectionist US moves worry Indian tech firms
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First Published: Wed, Jul 14 2010. 10 53 PM IST
Updated: Wed, Jul 14 2010. 10 53 PM IST
New delhi: Indian exporters of software and related services are seeking to tap an expected increase in technology spending in the US, their biggest market, but concerns of protectionist barriers in the world’s largest economy are still rife.
Late last month, Congressmen Gary Peters, Tim Bishop and Jerry McNerney proposed another legislation to curb outsourcing to countries such as India. Called the Stop Outsourcing and Create American Jobs Act of 2010, the Bill aims to discourage US firms from shipping jobs overseas.
“Outsourcing has contributed to unprecedented job losses in my home state of Michigan over the past decade,” Peters said in an email on the rationale for the legislation.
Indian software exporters have been hopeful of receiving a boost from the US recovery from recession that prompted US clients to slash technology spending. Industry body Nasscom has forecast that exports would rise to $57 billion (Rs2.65 trillion) in the year to next March from $49.7 billion in the last fiscal.
If enacted, the legislation proposed by Peters, Bishop and McNerney would allow the US government to give preference to firms not engaged in shipping jobs overseas in awarding contracts. It deters US firms from using tax havens and creating jobs overseas by increasing civil and criminal penalties for illegal transactions involving a tax haven country, such as fraud, false claims and tax evasion.
“I don’t believe that the US government should be rewarding companies that move jobs overseas with contracts funded by American taxpayers,” said Peters, a Democratic member of the US House of Representatives. He referred to two non-partisan studies to back his argument. While the Congressional Research Service says 3.4 million service sector US jobs would be outsourced overseas by 2015, the Government Accountability Office (GAO) said in a 2009 study that around 83 of the 100 biggest public corporations have subsidiaries in tax haven countries.
Nasscom has been lobbying with US senators and policymakers for several years now to stop any such legislation from going through.
“Any kind of Bill which penalizes IT outsourcing would lead to distortion in the globalized marketplace,” said Ameet Nivsarkar, vice-president, global trade development, Nasscom. “There have been quite a few Bills aimed at curbing outsourcing that have been introduced recently. The high unemployment rate in the US—9.5% in June—is a big challenge and the government there is trying various ways to create more jobs. But we have to see how many of such legislations are actually passed and become law,” he said.
Infosys Technologies Ltd, India’s second largest software maker, is not feeling the heat of anti-outsourcing sentiment in the US, but is keeping a close watch on the Comprehensive Immigration Reform Bill which yet to be introduced, CEO S. Gopalakrishnan said on Tuesday.
The Bill, being initiated by Senator Charles Schumer, is expected to focus on H-1B and L1 visas given to IT and other professionals and could possibly impose some restrictions on them. Infosys plans to apply for 3,000 visas this fiscal.
“The success of such Bills depends on (the) length to which people would go to stop outsourcing. Barring companies from participating in government contracts could be one of the ways to punish them for outsourcing,” Bala Rajaraman, a partner at consultancy Deloitte, said.
Another cause of worry for the software industry is the American Jobs and Closing Tax Loopholes Act, which is on similar lines as the Stop Outsourcing and Create American Jobs Act. While the former has been passed by the House of Representatives, it is yet to be cleared by the US Senate.
“With the elections to the US Senate scheduled to be held in November, the protectionism sentiment will only rise in the months to come,” said the CEO of a leading business process outsourcing firm, who did not want to be identified.
surabhi.a@livemint.com
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First Published: Wed, Jul 14 2010. 10 53 PM IST
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