Is US taxing India for its own survival?

BANGALORE, INDIA: Remember US President Barack Obama's 'legendary' mantra to save America from the financial tsunami? Say a big no to Bangalore and say yes to the Buffalo city, the President had urged the US firms in an effort to save Uncle Sam from financial burdens and unemployment.

But Democrat Senator Charles E. Schumer has failed even the President when he branded leading Indian IT companies like Infosys as 'chop shops' that break stolen cars to sell parts.

He said that the H1-B visa fees for them should be hiked to raise $600 million to secure the porous US-Mexican border. Interesting proposal.

This move to tax India for their own survival has not gone well with the Indian IT industry, however.

The immediate response of Infosys Technologies was that it was 'distressed' at the comment comparing it to a 'chop shop'.

“Our strategy is to create jobs in every jurisdiction that we work in. Today we have around 1,300 citizens and permanent residents working for Infosys in the US and have been actively working towards hiring over 1,000 additional people over the past few quarters,” it said in a statement.

Responding to the US move, NASSCOM, the voice of Indian IT and BPO industry, said that the “Border Security Bill”, which aims to raise fund for US border by increasing fees for H-1B and L-1 visas will have a significant impact on the Indian IT sector.

“While we understand the need for the US to protect its southwest borders, it seems that the funding proposed by this bill would be from the Indian IT sector. We would like to reiterate that Indian companies only take a fraction (under 12 per cent) of the total H-1B visas and US companies, who also use these visas in large numbers, will remain unaffected by this bill, thus unfairly reducing the competitiveness of Indian firms,” NASSCOM said in a statement.

Interestingly, Indian firms and Indian citizens pay in excess of $1 billion to the US in the form of social security, with no benefit or refund. Despite this, the move to increase visa fees is seen as indirect protectionism and contrary to the Obama administration’s repeated pleas to the international community to avoid taking such actions.

“We believe this will have negative impact on Indian companies which are investing in the US, employing US talent, driving US technological talent and are overall aiding the US economic recovery.... The adoption of these provisions by the US hinder the free movement of people essential for promotion of free trade. This move will also lead to diminished inflows of Indian talent which is helping to drive US tech innovation and spur US recovery,” according to NASSCOM.

According to Patni CEO Jeya Kumar, the move on the part of the US will further erode cost arbitrage.

“The visa fee hikes will further erode cost arbitrage and cause a change in the operational model of Indian offshore providers. On the positive side, the US still recognizes that it needs talent. The bigger issue is that if the 50-50 rule comes into effect then that will be a double whammy,” he said in a statement.

There is no doubt that the statement by the senator reflects the angst of a nation that is neck-deep in financial crisis. And also there is a politics behind, as the US is nearing mid-term elections and they have to win the confidence of the youth.

“Senator Schumer’s comment shows that in an election year, he is 'standing up' for American jobs. But that said, as we head into the midterm elections with 9.5 per cent unemployment and very little job growth, there will be more comments like this, unfortunately,” said John McCarthy, VP & principal analyst, Forrester Research.

McCarthy said that the Indian firms and NASSCOM need to be prepared with their own PR counterattacks and stories.

“Offshore customers would also be advised to take the same advice and have a clear PR plan ready to go at a moment’s notice in case they get raked over the coals as part of the rhetoric,” he said.

Ravinder Goyal, Director, IACM said the senator's statement is more or less like that of an Indian Politician.

“The senator can’t say “No” to Indian techies, and at the same time, try to woo the Americans... In my belief the entire industry should take a stand on such comments and ask for a respectable legal status to restrict such comments in future commented merely to polarize the voters. If the senator is so against the Indian companies, why doesn't he work for banning the Indian companies in toto?”

Sadly enough, the Government of India is still silent on the issue.

However, as usual, the social media is up in arms against the US move.

“What was the Democratic Senator trying to say? A chop shop is a place where stolen cars are dismantled so their parts can be resold. As a description of one of India’s most well-respected companies, the best you can say is that Schumer’s comment was misguided,” said a blogger.

One Twitter user, called Ramana, went a step further and said, “Mr Schumer, Shall we call HP a brothel? These days, you seem to be morally upright in calling Infosys a chop shop.”

As is the case of the Government of India, some of the IT companies are also keeping a convenient silence. But it is a fact that it is high time we broke the silence and raised our voice as responsible Indians.