Posts
Financial Express Editorial : Yes he didBarack Obama's economic instincts, like those of the Democratic Party, often lean towards the populist, most problematically against free trade. So, it isn't entirely surprising that President Obama has announced his intention to begin a clampdown on outsourcing—an export of US jobs overseas, in Democratic Party jargon—by indicating an imminent withdrawal of tax concessions to firms that outsource any of their activities. This follows other protectionist 'Buy American' clauses inserted into the $787-billion stimulus. And with Congress too dominated by a Democrat majority, there aren't too many checks on the US veering towards protectionism. The outsourcing policy change will, of course, worry the Indian IT industry, which is already hurting in the wake of a slowdown in the US and the Satyam scandal. Now, if US firms find it unprofitable to give out jobs to Bangalore because of tax reasons, then India IT will find it hard to sell its services to the US. Needless to say, the move to clamp down on outsourcing will be damaging to the US as much as to India. A McKinsey study computed that every $1 of activity outsourced to India yields a net benefit of $1.12-$1.14 to the US. Such is the logic of free trade, which is over ridden by narrow political interests, which will try to appease a particular constituency while hurting the economy as a whole. Still, given the circumstances there isn't much Indian IT can do to force the US government to change its policy. One option for Indian firms will be to set up more on-site offices in the US—but in the absence of H-1B visas, they will be unable to get Indian workers to move to the US to work on those sites. The other option is to explore other markets in Europe, East Asia and Africa, but these are all much smaller than the gigantic US market. So, tough times lie ahead for the Indian IT industry. Incidentally, President Obama's protectionist instincts aren't likely to remain confined to just outsourcing. He is a firm believer in agriculture subsidies to US farmers, which could, for all practical purposes, kill the prospect of any breakthrough at the WTO. The US and the world economy may yet pay a heavy price for any further tilt towards protectionism—remember Smoot Hawley, 1930? |
Add more friends to your messenger and enjoy! Invite them now.
visit us at www.shabbarsuterwala.com
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
No comments:
Post a Comment