Protectionism Worries Indian Outsourcers

India's leading software trade body said on Tuesday that protectionism in key markets could affect the growth prospects of the country's outsourcing industry.

Although market conditions are improving, the industry has to watch out for protectionism in some of its key markets, Pramod Bhasin, chairman of the National Association of Software and Service Companies (Nasscom) said at a conference in Mumbai, according to media reports.

Nasscom forecast last week that India's exports of software services and business process outsourcing (BPO) are likely to increase by 13 percent to 15 percent in the fiscal year to March 31, 2011. In the year to March 31, 2010, it is expected to grow by 5.5 percent to US$50 billion.

Indian industry is however worried by protectionism in the U.S., for example, which has suffered a high number of job losses as a result of the recession.

U.S. President Barack Obama said in January in his State of the Union Address that it is time to slash the tax breaks for companies that ship U.S. jobs overseas, and give those tax breaks to companies that create jobs in the U.S.

Describing the U.S. tax system as "broken", Obama said last year that it's a tax code "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York".

In November, U.S. senators Bernie Sanders (Independent - Vermont) and Sen. Charles Grassley (Republican - Iowa) introduced legislation to prohibit major firms that lay off large numbers of American workers from hiring cheaper foreign labor through temporary guest worker programs.

Critics charge that Indian outsourcers send staff from India to work on customer projects in the U.S.

A number of U.S. companies have also set up software and BPO subsidiaries in India to take advantage of the lower cost of staff in the country.

Top Indian outsourcing companies like Tata Consultancy Services and Wipro have tried to counter protectionist threats by expanding their delivery centers in the U.S.

Setting up larger operations in the U.S. also makes good business sense for Indian outsourcers, as customers are now demanding that their suppliers deliver a large proportion of services from locations close to them, rather than entirely offshore from India, analysts said.

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