Obama plays anti-outsourcing card once again

BANGALORE, INDIA: Playing the anti-outsourcing card once again, US President Barack Obama, in his first State of the Union address on Wednesday, said it was time to end tax breaks to American firms that farm out jobs overseas and help those who create employment within the country.

“To encourage ... Businesses to stay within our borders, it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America,” he said.

The statement that tax break will be a privilege given only to companies that create jobs for Americans, poses a veiled threat to outsourcing destinations like India.

It is a known fact that India has been one of the biggest beneficiaries of outsourcing and, naturally, the move to end tax breaks would negatively impact India – which got the pet name “the back-office of the world”.

Obama had made a similar statement in last February, by mandating local procurement of materials.

Though he said the worst of the economic storm is over, he also agreed that the devastation and challenges remain. And that is the reason behind this apparently anti-outsourcing statement. Though US companies outsource works to countries like India to save costs, it had created employment issues in the US, which further intensified due to the recession.

Over the last two years America had lost over seven million jobs.

"The only way to move to full employment is to lay a new foundation for long-term economic growth, and finally address the problems that America's families have confronted for years," Obama said.

And this anti-outsourcing card points to the fact that worst is not yet over.

According to software services industry body NASSCOM, Indian IT sector’s revenue accounted for 5.8 per cent of the country's gross domestic product in 2008-09, up from 1.2 per cent in 1997-98. So any move on the part of the US, which contributes to a major share of India's revenue in IT services, can impact the country's IT sector.

However, NASSCOM does not thnk that the US tax breaks issue will impact India.

"I think the concerns that we have is about indirect protectionism. I don't think tax break issue is really the one which is important for us. Obama's comment was not related to outsourcing. It's about US companies operating in regions where they get tax benefits," a PTI report quoted NASSCOM VP Ameet Nivsarker as saying.

But thre are fears that Obama's move could shake the foundations of India’s IT services industry.