The tremors of the US tariffs are being experienced globally in varying degrees. In India, the impact so far has been on exporters of some of the manufactured goods. However, there are concerns in several quarters about the emerging challenges the Indian IT outsourcing services industry may have to deal with. The $280 billion IT industry, built from scratch over the last four decades, has been the pride of India and the envy of many. After the initial few years of providing staffing services, the industry has come a long way and has established a position of preeminence globally, building a reputation for delivering dependable, high quality solutions at significant cost advantage. The dual advantage of quality and low costs of Indian talent has led to several multinational banks and corporates setting up base in Indian cities making their Indian talent pool amongst the top three of their global employee base for some of them.
Concern about the likely 25% US tax on outsourced IT services
The current protectionist policy being pursued by some of the countries is reflected in restrictions on admissions of foreign students to universities, challenges in the access to jobs and long lead times for becoming residents or citizens in many cases. There is now additionally the speculation on the likely 25% taxation in the US on companies outsourcing IT services to other countries.
Although it would not directly affect the Indian outsourcing firms, the apprehension is that Indian IT services would become expensive and as a result, foreign customers may start looking elsewhere to address their requirements. Should this become a reality, it would be hard on the Indian economy which is already feeling the pressure of global economic uncertainties coupled with AI led job displacements.
However, there are many stages before this proposal could become a reality and such a possibility seems extremely remote. At the same time, India has to be prepared to deal with any potential negative impact arising out of such moves and get proactive with its own risk mitigation strategy. The first obvious strategy would be to find alternate markets to the US. It is easier said than done as 60% of the current revenues are from the US market. Many Indian companies have started hiring US citizens who could be deployed on projects at US sites. However the access to such a talent pool is limited as of now and the shortage of skilled resources is likely to continue.
Call for US-India partnership
With the view to building a large scale IT Talent pool, India has gone through its learning curve for identifying potential talent that could be trained and equipped with relevant skills. Similar models should be actively initiated on a large scale in the US market in partnership with American academic institutions and ready the American talent pool for the industry to employ them.
As a nation, we have not been successful in developing globally successful IT products despite a lot of efforts in this direction. The time has come for India to move away from the approach of ‘projects to projects’, to one that is ‘produce once and sell for ever.’ The focus has to shift to digital products and AI-led platforms and decouple the notion of jobs being moved from one country to the other. Further, the earnings and profitability could be significantly more attractive with such business models than the traditional lift, shift and innovative approach of outsourcing.
In order to facilitate this systematic transformation, we need a fundamental change in the academic system in order to introduce design thinking and product development DNA in the future workforce. We need to be able to create multiple pilots with a bold and focused approach on a mission mode knowing several models would fail but through such failures, a few successful offerings would emerge in the next decade that could become the trendsetters for the world. Instead of being pulled back by the unexpected challenges, these could become turning points in our goal to leverage the demographic dividend we possess and build winning products with the global footprints.