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The 60-billion Indian IT sector is putting up a brave front in face of U.S. President Barack Obama’s call to end tax breaks for American companies that outsourced jobs overseas.
India today is a towering giant in terms of back-office operations, thanks its low-cost high quality intellectual workforce, English-speaking population and time-zone. Indian IT companies are sitting with their fingers crossed hoping that Obama’s recent rhetoric will not lead to protectionist measures that could cause stoppage of outsourcing jobs.
Obama addressing his first Sate of the Union said, to inspire businesses to stop outsourcing their jobs to the overseas market, it’s imperative to cut tax breaks for companies that outsource jobs and give tax benefits to those that generate jobs right here in the United States.
As per Indian software services industry, the National Association of Software and Service Companies (Nasscom), the Indian IT sector comprises 5.8 percent of the country’s gross domestic product in 2008-09, up from 1.2 percent in 1997-98.
Incidentally, more than half of India’s USD $ 60 billion IT and outsourcing industry revenue comes from United States.
Nasscom vice-president Ameet Nivsarkar addressing the local media said the real concern for Indian IT companies was protectionism and not tax breaks.
According to him, Obama was targeting subsidiaries of American companies that rake in higher profits in low tax countries but not pay back the same to the US where tax rates are higher.
Indian IT industry’s broadly held view is that outsourcing in India has become mainstream and hence it would be difficult for Obama to reverse the trend. And to justify that statement, the cost and the competitive pressures on American companies are mounting day in and day out and hence the US companies will be compelled to offshore to destinations like India to cut down costs.
According to a leading national daily the cost of a starting level engineer in an IT company is almost USD $ 50-60 an hour. However, in India or China the cost could be brought down to USD$ 25-30 an hour.
According to industry sources the move could stop the fresh flow of outsourcing work to India and other countries, however not moving back jobs that have already being shipped out.
However, US companies no doubt will make most of the situation by indulging in hard bargaining with Indian companies to get the work done for far more economical rate than what was done earlier. This in turn may affect the bottomline of top IT companies.
Pradip Kanakia, executive director in KPMG, opined that Obama’s new drive in a way will usher in new opportunities for Indian companies. US President’s special focus on cutting down on country’s healthcare expenditure could be the main focal point for Indian IT companies going forward. By far Indian IT companies have been focusing on rendering financial services, telecom, IT enabled services etc, moving forward the companies could think of switching gears and provide innovative solutions in the realm of healthcare services. .
This is not the first time Obama has been speaking against outsourcing. In May last year, he had hinted that American companies shipping jobs overseas will be required to pay additional taxes.
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