While the Indian information technology (IT) and related services industry’s protest against a decision of the government of the state of Ohio in the United States on banning outsourcing of IT services in government procurement is understandable, India has no official ground to stand on in conveying its displeasure. By choosing to remain outside the existing plurilateral agreements on government procurement, even though India finally decided to become an observer on a World Trade Organisation (WTO) panel on government procurement earlier this year, the government cannot really take the US to the WTO on this issue. In announcing its decision to become an observer on the WTO panel this January, a government spokesperson said that India could be hurt by retaliatory action by the US that could impose a ban on Indian companies benefiting from US government procurement, if India did not open its own government procurement to global tenders under a WTO protocol. The Ohio state government action is a sample of things to come.
It would, however, be wrong for India to assume that such bans are India-specific. With upwards of 10 per cent unemployment and declining popularity, the Barack Obama government is under pressure to do something to generate more jobs at home. Actions like these are aimed precisely at achieving that objective and Indian companies must be prepared for more. At the same time, it is important not to exaggerate the impact of government procurement on total demand for outsourcing emanating from the US. Indian IT and software services companies supply services to almost every Fortune 500 company in the US. The US private sector market is huge and will continue to demand Indian services in its own bid to remain globally competitive. Hence, Indian politicians and lobbyists need not get too worked up, even if they must wake up and respond to this new source of pressure on Indian exports.
One way India can help buy support for itself in the US is to buy more from the US. Such purchases by an India growing at over 8 per cent from a country facing the threat of double-dip recession can help win friends and calm fears in the US. The recent decision of the Indian civil aviation sector to buy more Boeing aircraft will help. If the Indian nuclear liability regime had been more accommodative of US corporate interests, that too would have helped. But having upset US companies with its high-minded supplier liability regime, India should only expect such pinpricks as the one from Ohio. Finally, India must take a new look at its stance on a WTO agreement on government procurement and on the wider issue of the agreement on trade in services. India needs multilateral protection from such arbitrary bilateral action. Yielding ground on government procurement in exchange for an agreement on services covering all modes should be considered.
