Indian firms may lose Rs 1,400 crore

India's software services and business process outsourcing (BPO) companies will lose business worth Rs 1,400 crore in 2004, if the proposed US law barring outsourcing of government contracts to India and other countries by American companies gets President George W Bush's approval.

Government work from various US state departments constitutes about 2 per cent of India's total software and BPO exports.

The National Association of Software and Service Companies (Nasscom) said that such a law was not in sync with the increasing globalisation of trade and the spirit of free trade being promoted by the World Trade Organisation (WTO) and long espoused by the United States.

"We are dismayed to learn about the Bill in the US Senate that restricts offshoring of work contracted out by the US government. This Bill is yet to become law, and we hope that wiser counsel will prevail," said Kiran Karnik, president, Nasscom.

The legal measure, originally sponsored by the Republican Senator from Ohio, George Voinovich, and others, was included in a $328-billion spending Bill passed by the Senate.

The provision is the first federal law that limits companies from performing contracted work outside the US, ever since outsourcing became a potent political issue in the US a year ago.

As per the proposed law, when the US government gives contracts to an American firm, that firm cannot give sub-contracts out of that to a source outside the US.

Pointing out that the Bill was limited to the period up to September 2004 and only covered contracts by two government departments, Nasscom said the business impact of such a move on Indian IT industry would be small, as the share of US federal government contracts in exports of IT software and services from India was less than 2 per cent.

According to a senior IDC analyst, such a bill may have little implication now, but can grow in size in the future as various government departments in the US would begin to outsource work and Indian companies and industry associations need to be more cautious about such moves.

He, however, pointed out that this move by the US lawmakers would undercut the ability of US companies to compete with their overseas rivals.

Indian software companies said that they are not impacted by the new law. India's second largest software exporter Infosys Technologies said that the bill will have no material impact on the company as it was not involved in government projects at this point.

"It will not have any material impact on Infosys since we are not involved in government projects at this point", Krish Gopalakrishnan, chief operating officer, Infosys said.

However, Tata Consultancy Services, which undertakes large government projects in the US, was not available for comments.

HCL Technologies, which undertakes some government related work, also said that the company does not see this move impacting is as the government related work it undertakes is very less.

Similarly, NIIT Technologies also said that the company is not impacted by the law as it does not have any government contract at present.