Mumbai / San Francisco: US President Barack Obama’s visit to India puts the spotlight on its $60 billion IT sector, which argues it is a creator of jobs in the United States and should not be blamed for high unemployment.
An increase in US visa fees, a ban on offshoring by the state of Ohio and the industry’s portrayal in campaign ads as a drain of US jobs has set a frosty tone ahead of Obama’s visit to India in early November.
Obama is expected to visit Mumbai, India’s financial hub and the centre of the 2008 militant attacks. US officials say much of the trip’s focus will be boosting trade that is expected to double in five years from the current level of $50 billion.
But it is a sign of the times that Obama is not expected to visit Bangalore, the country’s technology hub. Nor is he expected to visit Hyderabad, another Indian IT hotbed, where his predecessor, George W. Bush, stopped in a 2006 visit.
“It is a worry, there’s no question, but the worry is more about unemployment, not about the political rhetoric,” said Pramod Bhasin, chief executive of outsourcer Genpact Ltd. “We as an industry have to help create jobs in America and we have to communicate that much better than we’ve done in the past,” said Bhasin, whose firm employs about 2,000 in the United States and expects to double or triple that over the next two to three years. Three-quarters of Genpact staff are in India.
Obama’s fellow Democrats are expected to take a drubbing in the 2 November balloting amid unemployment stuck near 10%.
In California, where the jobless rate tops 12%, Democratic Senator Barbara Boxer accuses her Republican rival Carly Fiorina of sending jobs abroad when she was chief of Hewlett-Packard.
Legislation that would end tax breaks for firms that create jobs and profits overseas was thwarted in the Senate, but a new rule raising the cost of certain visas to enter the United States, part of a border security bill, will cost Indian IT firms $200 million and sets an ominous precedent for the industry.
“It has nothing to do with immigration, but it has had an impact on the costs of IT services companies from India. That is the kind of legislation that worries us,” said S Gopalakrishnan, CEO of sector bellwether Infosys Technologies Ltd.
India’s IT services industry, which generates 70% of its revenue from the United States and accounts for 5 percent of India’s economy, is a victim of its own success.
Before the global economic downturn, the sector was growing by roughly one-third per year as companies across industries shipped commoditised work to India and elsewhere to cut costs.
US blue chips from Intel and Google to Cisco and Microsoft have substantial operations in India, which is increasingly a research hub for Silicon Valley. IBM alone is believed to employ more than 70,000 in India, although it would not confirm that figure.
While China’s emergence as an industrial powerhouse has spawned US backlash over lost manufacturing jobs and a weak currency that keeps exports cheap, India is associated with armies of young engineers and service staff working for one-fifth to one-third the wages of American white collar workers.
For India, the IT boom has created a world-leading industry that has been culturally transformative in a tradition-rich country, employing two million people working in modern offices and buying cars and apartments.
Outsourcers say they enable clients to innovate and compete, providing skills not readily available in the United States.
“There is a huge dearth of software engineers in the US, and a large part has been mitigated by offshore work,” said Aparup Sengupta, managing director and global chief executive of Aegis Ltd, an IT services firm owned by the Essar conglomerate.
The perception within the United States is often less benign.
In an episode of “Outsourced,” a new US comedy TV show, bricks are thrown through the window of an American call center that has transferred its work to India.
Indian IT industry players say they are not to blame for US job losses, and instead talk up creation of jobs both directly and indirectly in the United States.
“Job losses are not due to outsourcing. They’re due to subprime, they’re due to the financial mess, they’re due to lots of other things,” said Bhasin of Genpact, which this year bought an operation in Illinois from Walgreens as part of a deal to provide accounting services for the drugstore chain.
Outsourcing work to a lower-cost US site can save roughly 20-25%, while moving work to India saves 70 to 80%.
Last year, Infosys announced a plan to hire 1,000 employees in the United States and said it has made nearly 300 job offers since then. Of 122,000 Infosys staff, over 2,000 are US-based.
“We think there are perceptions and myths today, and these need to be corrected, because it’s not about jobs moving to India, its about our creating jobs there,” said Som Mittal, president of Nasscom, the trade body for the Indian tech sector.
Anti-outsourcing talk may cool after next week’s elections but could reemerge with greater intensity in the run-up to 2012, when Obama will be up for re-election.
“In February, no one is going to be talking about India,” said Derek Scissors, a research fellow in the Asian Studies Center at the Heritage Foundation, a conservative think tank in Washington. “But what about 2012? That’s a different story.”