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US Senate approves outsourcing ban
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3/2004 |
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[ India criticizes USA ]
US Senate approves outsourcing ban
A law passed by the United States Senate in January prohibits American companies from delegating work on government contracts to sub-contractors abroad. Originally sponsored by Ohio Senator George Voinovich (Republican), this legal measure is the latest development in a heated US debate on job outsourcing to low-wage countries such as India and China. India, whose fast-growing information technology sector is fuelled in large part by the export of data entry and software development services, reacted angrily to the news. US industry associations also protested. When D+C went to press, the law had still to be signed by President Bush and was thus not yet in force. Senator Voinovich had attached the text to a national transport spending bill. If President Bush signs the draft, the ban will apply only until September when the budget year comes to an end. At that point, however, observers believe the ban on outsourcing government contracts will be renewed.
Without explicitly mentioning the United States, India's Prime Minister Atal Bihari Vajpayee said it was “not fair” that some countries were seeking to prohibit the outsourcing of contracts by law. Such attempts, he said, came at a time when Indian youth had carved out a niche in the global information technology and software development sector.
India's information technology minister, Arun Shourie, told the World Economic Forum in Davos that this was no way for Washington to get the stalled engine of world trade talks back up and running. Anand Mahindra, president of the Confederation of Indian Industry, pointed out that in the Cancún world trade round the US government itself had pressed India to acceed to the Singapore issues. The aim of one of those issues is to improve transparency in public-sector procurement and create equal opportunities for domestic and foreign companies competing for government contracts. The move by the US, Mahindra said, shows political inconsistency.
The proposed legislation sends out a loud and clear signal and diplomatic feathers are duly ruffled. But the actual damage will probably not be that great. This is because US government contracts account for no more than two percent of total Indian IT service and software exports. According to the US information service Datamonitor, foreign sub-contractors get only 1.4 percent of the 18.5 billion US dollars paid to private companies for all US government contracts. Even so, the outsourcing ban draws criticism from American business, which complains that it will affect the competitive strength of companies in the USA.
In view of US legislation, information technology minister Arun Shourie says Indian IT companies need to diversify their markets and move up the global value chain. Admittedly, the Indian technology industry has a bone to pick with its own government, too. That is because India’s government is considering taxing foreign companies, which outsource work to India on the basis of their total global revenues (and not just the revenues generated in India) if Indian subcontractors' contributions to such revenues are substantial. Some foreign companies have already said they intend to pull out of India if the proposal becomes law. (ell)
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