No serious impact of US outsourcing Bill seen

Even as the Bill to curb government contractors from shifting work overseas is likely to come up before the US Senate this week, industry leaders in India are confident that it will not have a serious impact on companies that are riding high on the offshoring wave.

However, these experts are quick to add that indicators like these need to be viewed seriously in the long-term.

While this Bill, if accepted by the Senate, may become the first federal law to limit companies from outsourcing, there is a general consensus among industry observers in India that its impact is going to be minimal.

Reacting to the outsourcing curb of Federal projects, Infosys COO Kris Gopalakrishnan said: "This Bill concerns sub-contracting work on Government projects. Since the work Indian companies do for the US Government is not much, we see the impact to be minimal. It will not have minimal impact on Infosys as we are not involved in US Government work. However, as an industry we have to watch the situation."

In a statement, Nasscom has said that this move does not give any reason to ponder. While it feels that the Bill is clearly against globalisation of trade, the very fact that it applies to only Federal government's projects will not have any impact on India.

According to Kiran Karnik, President, Nasscom, "We are dismayed to learn about the Bill in the US Senate that restricts off shoring of work contracted out by the US government. This Bill is yet to become a law, and we hope that wiser counsel will prevail. Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by WTO and long espoused by the United States. We understand that the Bill is limited to the period up to September 2004 and only covers contracts by two government Departments. The business impact of such a move on Indian IT industry will be very small, as the share of US federal government contracts in exports of IT software and services from India is less than 2 per cent."

The US government has a long track record of leveraging IT resources for improving quality of government services for its citizens and Nasscom believes that "this trend is likely to continue".

Taking an even bolder stand on the US curbs, Raju Bhatnagar, COO and President of ICICIOnesource said, "This will not have any significance on the Indian companies as only a small part of such work is handled by Indian companies. Moreover, under the spirit of World Trade Organisation, free flow of services cannot be curbed. Movement of people though can be curbed through Visa restrictions and there is very little the US Government can do to legislate private organisations work being moved to India. The only way this can be done is to subsidise by some means and I do not think, no one will go to that stage. I feel that Israel might have to take the brunt of this legislation as I think a whole lot of defence work is done in Israel."

While some are also of the opinion that this move may have been a result of elections in the US, Avinash Vashisht, CEO, neoIT, a leading offshore consulting firm said, "This Bill will be harmful to US competitiveness. US firms need to be competitive globally and this move prevents that opportunity. For offshore firms, Federal contracts account for a small percentage of business and so will have very little impact. In fact, today, only 2 per cent of offshore engagements are from Federal states."

Ashok Soota, CMD, MindTree dismisses the entire episode, but warns of what may be in store.

"Don't read too much into such things. We should be careful to not read too much into such policies. But, we should watch the policy signals that come later in the year. The panic is mostly to do with anxiety and not with the Indian economy. There are bound to be some grey areas as policies evolve."

Even though companies will continue to keep a watch on developments like these, the long-term impact cannot be ruled out completely.

Owing to the fact that the Bill is limited to September 2004 and that Indian companies are hardly engaged in Federal contracts, this is bound to have a minimal impact.

Studies have also shown that the growing US economy must opt for outsourcing or immigrant labour to sustain its growth. However, this Bill does not negate worse moves that may be in store.

According to Ravi Ramu, CFO of MphasiS, "There are two catergories of companies that come under this Bill. Firstly, the treasury and transportation functions are usually outsourced to US companies by the Federal governments in the US. Indian companies have nothing much to do with contracts of this nature. Secondly, those that work marginally with Federal contracts will have a minimal impact. Considering US and the WTO policies, it is unlikely that this move will hold good. In the long-term, one needs to be a little cautious on whether this is a warning of things to come in the future or will it die a slow death. We can definitely not discount its impact as zero."

Whether it will be a one-off thing or is it an indicator of things to come in the future is what one has to watch out for.