The Captains of the Indian IT industry could see it coming. Cut in IT budgets, delay in project allocations and a complete freeze in certain cases. Having anticipated these fall-outs of the global economic downturn, IT majors had over a year to work their way around these issues. However, the recent protectionist measures of the American administration have completely taken them by surprise. While the anti-outsourcing stance was earlier brushed aside as election rhetoric, the fact that US President Barack Obama has articulated it again (though it has not been formally passed as yet), has alarmed the industry.
What is adding to the pain is a complete lack of clarity on these issues. While Obama has openly said that companies which outsource jobs would not be given any tax benefits, it is still not clear whether he means manufacturing jobs or services jobs. On the H-1B visa issue?the latest to join the protectionist bandwagon, there are several theories doing the rounds. But, is hype overshadowing the real issue?
?The American economy was always based on free market principles. It is the first time that they are talking about measures they advocated against one or two years back. So, it is bigger in terms of its perception value rather than the real impact,? says Diptarup Chakraborti, principal research analyst, Gartner. He adds that America?s efforts to save local jobs by discouraging companies from hiring foreigners, especially those coming through H-1B visas is not a big worry.
Of the 65,000 H-1B visas issued last year, 65-70% were taken up by Indian professionals. These were spread between various industries, including banking & finance and IT. According to market estimates, between 16-18% of total H-1B visas issued were to onsite employees of Indian IT companies like Infosys, Wipro and Satyam. BPO units on the other hand send almost negligible employees on H-1B visas.
According to the latest legislation, companies which are a party to the bail-out package won?t be allowed to replace any American worker with one holding a H-1B visa. Considering that most Indian IT companies do not fall into this bracket, this is a non-issue for them. According to industry experts, even if there is a complete ban on H1B visas, Indian IT companies can easily cope with it.
?One of the alternatives to something like this could be relocating onsite Indian workers back to the country and hiring the locals,? says Viral Thakker, executive director, KPMG. ?Considering that companies like Infosys have a small percentage of their total employee base working there, the cost of hiring Americans would not make a huge difference to their balance sheets,? he adds.
?Companies could face problems in getting new visas which can be easily tackled. Also, an H-1B visa is valid for a minimum of three years and can be extended up to six years. So, people who are already there have nothing to worry about,? says Chakraborti, adding that in any case the rule is not permanent and will be made only for two years.
?In fact, one of the positives of this could be that since companies are being discouraged from hiring foreign talent in their land, they will be prompted to outsource to India, which will also save them money,? says Chakraborti. Experts also opine that the policy defies the meritocracy America was. Such measures are against its fundamentals of hiring the best talent in the world. On the brighter side, it could be detrimental to the boom in countries like India and China as highly qualified workforce will return on their homeland and contribute to its success.
However, the fact that America is talking about ending tax-breaks to companies that outsource jobs to countries like India and China is worrisome. The US contributes more than half of the export revenues of the Indian IT industry. Though there is more ambiguity than clarity on this topic, the industry is clinging on to every bit of information.
While a section of industry leaders and analysts feel that services is not part of the policy, no one seems to have a clear idea on the issue. ?Most government and business leaders recognise that the world is very connected. Protecting against offshoring is very difficult and complicated,? says Eric Simonson, managing principal of the Everest Research Institute. He adds that, for instance, Accenture is based in Bermuda, Hamilton. So, does Accenture count the same as Infosys? Does it matter that the jobs are in New Jersey or in Canada? ?In the US, the manufacturing aspect of offshoring is much large. The services side of it, which is big news for all of us, particularly India, is still a small piece,? Simonson says.
Though this view is comforting, companies are in the panic mode. Analysts feel that in case something like this takes place, the government, along with the industry, has to exert pressure for its reversal. ?There has to be hard lobbying to stop this as there could be a backlash from India as well in terms of the sale of American goods etc,? says Chakraborti.
However, he also takes a different view and says that Indian companies should pull up their socks and get prepared to deal with it, rather than crying over the matter. ?Indian IT ind-ustry has had a great run for the last 10 years. There was a little focus on improving processes and efficiency. Now, the push has turned into a shove. The industry can?t be growing at 20-30% a year forever. So, it needs to pull up its socks and face the issues at hand,? he says to sum it up.