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Sting in the tail of US outsourcing ban
By Ranjit Devraj
NEW DELHI -
While a new United States federal law banning the
outsourcing of government contracts will not seriously
hurt Indian companies, it will certainly affect trade
negotiations at the World Trade Organization (WTO), warn
political and business leaders here.
The growth
in outsourcing to countries like India - of services
such as accounting, billing, transcription, call
centers, medical transcription and diagnosis,
number-crunching, administration and anything that is
information technology-enabled - reflects a desire by
big companies and the US government to save on costs at
home.
But now, the new laws are apparently
designed to keep jobs at home. In 2002, the US spent
US$450 billion on services outsourced to India and other
countries that have educated English-speaking people -
such as the Philippines and Ireland - and high-speed
data transmission facilities.
In India,
Bangalore is a major hub for outsourced work and so are
Pune, Hyderabad, Delhi and Kolkata. "They expect India
and other countries to open up our markets. But when it
comes to accessing their services sector they bring in
anti-outsourcing laws," said Arun Shourie, India's
minister for information technology and
telecommunications, reacting to laws passed by the US
Senate on January 22.
Shourie said the US law
against business process outsourcing (BPO) to India and
other countries would "worsen prospects for multilateral
negotiations in trade". "This sends out wrong signals at
a time when the US and India are working with others to
lower trade barriers and establish fair trade rules,"
said Arun Jaitley, India's minister for commerce and
industry.
The irony of the situation was brought
out by Indian IT leaders at the World Economic Forum
held at the winter resort of Davos, Switzerland between
January 21-25, which brought together political,
government and business leaders.
Nandan
Nilekani, chief of the Indian IT major Infosys at a
workshop on outsourcing at Davos, said: "You asked us to
liberalize our economies, you preached the virtues of
globalization, you invented the business practice of
outsourcing. We merely followed your advice and used the
tools that you gave us."
Only 2 percent of
India's $17 billion IT market is likely to be affected
by the new law, but business leaders are aghast at the
trend that they say smacks of unfairness.
"Such
decisions do not help the free-trade policy envisaged by
the WTO," said Ramalinga Raju, chairman of Satyam
Computers, an Indian company listed on the New York
Stock Exchange.
In a statement, the
Confederation of Indian Industry (CII) said that "such
anti-liberalization measures when adopted by developed
countries, particularly the US, would lead to greater
protectionism and impact global trade flow". CII pointed
out in the statement that the US government pressured
India to accede to "Singapore Issues" in the WTO
negotiations that includes giving no favors to domestic
suppliers, but has now gone back on its own stand.
In a draft report on the situation, the UN
Conference on Trade and Development (UNCTAD) has advised
India to take a lead in challenging the restrictions on
BPO under provisions within the framework of
multilateral trade negotiations. "India should take the
initiative to see that legal restrictions placed on
outsourcing are brought within the coverage of GATS
[General Agreement on Trade in Services],'' the UNCTAD
report said.
Shourie said he believed the new
law, which has already been adopted by eight US states,
was a shortsighted move enacted in an election year in
the US - and one that would hurt the US economy more
than any other country.
The minister said he
expected opposition to the law from affected firms in
the US that "avail of our services as they must know the
consequences to their competitiveness if they are not
allowed to outsource".
Citing published studies
on BPO, Shourie said that over the past five years the
US economy gained more than $50 billion by outsourcing
to India and other countries. BPO work at first covered
low-end, back-office operations for transnational
companies like British Airways and Lufthansa, which
found it cheaper to have their accounting work done in
their Indian offices. But this later grew to include
software giants such as Microsoft.
Several
Indian IT majors, including Infosys, Wipro and Satyam,
have entered the business of taking on contracts for
large multinational firms and sometimes subcontracts of
US government jobs farmed out to them. All three say
they have not been hit by the new US law but are worried
by the trend that may catch on in European markets.
According to an alliance of software companies,
the BPO industry now employs more than 200,000 personnel
and is projected to give employment to 2 billion people
in India in the next five years.
The US is not
the only Western country worried about outsourcing to
India. The National Rail Network in Britain gets work
done in India and so do banks like Shanghai Bank Aviva
and Prudential.
Last year, Britain lost 8,500
jobs to India and some projections say the figure could
reach 200,000 in the next five years. According to the
Confederation of British Industry, 43 percent of British
companies are considering relocating their head office
functions to India and there are fears that Britain may
in the long run lose even the skills required to run
offices.
India's Prime Minister Atal Bihari
Vajpayee has argued that the phenomenon of BPO was the
direct result of the US and other Western countries
cutting back on visas and work permits for
professionals. "You can't have it both ways. In the
absence of liberal visa and work permit regimes,
outsourcing is inevitable because professionals in India
and other countries are highly competitive," he said at
a recent meeting of information technology investors.
(Inter Press Service)
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