India’s IT sector braces for United States backlash

NEW DELHI: The Business Process Outsourcing (BPO) controversy first started as a limited protest against US government orders and jobs going to outsiders, particularly to India and Indians. It was kicked off by Senator Shirley K Turner, who moved a bill last year in New Jersey seeking a ban on government technology-related work from going to countries like India. This bill is yet to be passed, but the idea mooted by Turner is fast gaining ground, reports Asia Times.

Four more states, including Maryland, Missouri, Wisconsin and Connecticut are now reportedly contemplating similar bills. US labour unions, too, have joined in the fray, egged on undoubtedly by continuous lay-offs, worker frustration and attention-grabbing headlines, which have created the impression that India’s IT growth is at the cost of the US worker.

Such impressions have changed the complexion of the debate, taking the focus off US government tech business going to India. Instead, it is fast taking on the shape of greedy, profit-hungry, US multinationals collaborating with overseas partners and foreign migrants to deny the American public its due.

Fueling such sentiments is the sustained US slowdown. The overall unemployment level has touched 6 percent. In Silicon Valley, it has reached 8 percent. Laid-off workers, particularly immigrants, have flooded US universities, hoping to sit out the slowdown rather than return home. The potential of a war in the Middle East has exacerbated uncertainty, adding to the overall uneasiness.

The net result is that US senators, politicians, labor leaders and pressure groups are now demanding more than legislative intervention to stop what they see as profit-crazy multinationals from relocating operations abroad, benefiting foreign nationals. And the focus has spread to the larger issues of migration, globalization and raising entry barriers by slashing H-1B visas (US work permits).

Leading such a campaign are web sites like, which claim that they are not anti-immigrant, but seek to educate the American people on how “the H-1B technical visa programme is costing American jobs and undercutting your wages”. The portal, sponsored by Representative Tom Tancredo (Colorado and chairman of the Immigration Reform Caucus) and Representative Cass Ballenger (Republican, North Carolina), explains, “The H-1B visa programme allows American companies and universities to import foreign scientists, engineers and programmers. Unfortunately, it has no serious safeguards to protect American workers from being replaced and is abused to provide cheap foreign labour.

“Moreover, H-1B workers continue to flood a terrible job market. In October 2000, Congress bowed to high-tech lobbyists’ claims of a desperate worker shortage and raised the H-1B visa cap to 195,000. Now, despite widespread unemployment, the number of H-1B visas continues to grow. 163,000 new visas were issued in 2001 and 79,100 in 2002. It’s ridiculous to import so many foreign workers during a period of high unemployment. Congress needs to increase domestic worker safeguards, significantly reduce the number of H-1B visas issued and crackdown on visa violations and fraud.”

The portal, which surely reflects to a great extent the average unemployed American’s concerns, further spells out a five-point formula for what a US national could do. These measures include “telling” the US area senator and representative the following:

n Reduce the maximum number of H-1B visas to 15,000 annually and tie any potential increase to improvements in the unemployment rate.

n Don’t let President George W Bush cancel the H-1B domestic worker training program and use its money for expedited processing of foreign worker visas, like he’s proposed in the 2003 budget.

n Require all employers to certify that no domestic workers are available before hiring an H-1B, and require recertification after a major layoff. No exceptions.

n Set minimum salaries for H-1B workers based on the Bureau of Labor Statistics occupational wage data averages rather than rely on business to determine the prevailing wage.

n Enforce existing laws that prohibit unemployed H-1B workers from staying and seeking reemployment.

Clearly, in just weeks, the mood has shifted from just being anti-BPO to anti-foreign workers, particularly tech workers. This is beginning to make countries such as India – one of the largest beneficiaries of BPO and the IT services wave – nervous, despite Indian IT pressure group, NASSCOM, and the Indian Minister for IT and Communications, Arun Shourie, maintaining until recently that the New Jersey bill is unimportant since the bulk of India’s BPO business is “non government” in nature.

The Indian position has thus far been backed by expert opinions. International IT outsourcing and BPO consultants such as Michael F Corbett, who holds the view that outsourcing is “one of the greatest organizational and industry structure shifts of the century” have made the point that while government outsourcing (privatization) itself grew by 65 percent during 1996-2001 to touch US$400 billion in the US alone, it still remains “a good 10 years behind private sector outsourcing across the globe”.

The solace drawn from such statements is, however, beginning to wane, with significant changes to the BPO controversy. Already, there is talk of a quiet government-to-government dialogue between India and the US on the issue. Some of the arguments that the Indian side is arming itself with include non-compatibility of trade barriers with the World Trade Organization (WTO) and the subtle threat that India could take the US to the WTO redressal disputes forum if the federal government hampers market access (ie, prevents US companies from outsourcing to India.)

Simultaneously, anti-liberalization sentiment within India has begun mounting its onslaught on how the developed nations should resist globalization when it impacts their interests. Providing grist to this mill are developments in Europe, with the United Kingdom and Germany also now considering restrictive action to safeguard domestic interests. Such a move is being considered through a protectionist measure called TUPE (Transfer of Undertakings and Protection of Employees), which could negatively impact IT flow to India.

Meanwhile, die-hard trade and pro-globalization economists like Jagdish N Bhagwati, University of Columbia, have begun promoting the idea that since migration cannot be stopped, it would be better for countries which face a brain drain to tax nationals who migrate, while importing nations should assimilate and accommodate the new population. The taxation idea has so far not found takers. Nor has the idea of adoption of the migrant population found immediate favor with importing nations.

Also, industry pressure groups in India and the US have joined hands to stem the tide of popular opinion against India and the Indian technology worker. NASSCOM has begun a campaign to “educate” the American people and policymakers on the aggregate benefits to the US economy as a result of collaboration with Indian IT companies. Sunil Mehta, vice-president (research), NASSCOM, recently made statements to the effect that “after an internal analysis on the respective benefits to the US economy, NASSCOM has begun a relentless campaign in that country. The banking and financial sector alone has been able to save around $8 billion in the last four years due to outsourcing their requirements, “ he said.

Mehta’s views have been seconded by international outsourcing consultant Nigel Roxbough. Speaking at the same seminar as Corbett in Chennai, Roxbough noted that IT infrastructure and BPO cut costs by 12 percent and offshore outsourcings offered 40 to 50 percent cost reductions. The seminars at which Roxbough and Corbett made their presentations were, predictably, organized by NASSCOM.

Interestingly, NASSCOM’s lobbying is finding resonance at the US end with the Information Technology Association of America (ITAA) launching its own pro-BPO campaign. The ITAA represents the interests of the US technology industry, which stands to lose as much by legislative curbs on outsourcing, offshoring or importing of tech-savvy manpower into the US.

The ITAA recently released a report that highlighted the fact that the IT workforce in the US was stabilizing. “Both hiring and dismissals are far below January numbers, which may signal a stabilization of the IT workforce after the roller coaster of recent year,” ITAA president Harris Miller said, in a tone aimed at pacifying detractors. “We’re also seeing more optimism than last quarter on the part of hiring managers as they anticipate their needs over the next year.” ITAA’s report shows that US tech recruitment has gone up by 2 percent during the first nine months of 2002, up from 9.9 million in January to 10.1 million in October.

The US tech industry association is also predicting that the IT industry’s human resources demand will touch an additional 1.1 million workers in the coming months, which is being dismissed by independent technology recruiters like Frances Quittel, better known on the Internet as Careerbabe. Speaking to Information Week, Quittel states, “Companies are waiting, they are not making any plans, they are in hold mode and are trying to figure out how they can wrap up the fourth quarter before moving along.” She further adds that companies are not innovating; there’s no new technology that companies feel compelled to have, as they felt compelled to implement the Internet in the 1990s. “When you’re in maintenance mode, you don’t need to hire a lot of IT people. You can outsource those jobs. There is nothing driving this economy that is a huge wave of must-have technology,” she states.

While this debate on the veracity of the ITAA’s projection continue, the Arlington, Virginia-based ITAA and the Oakbrook Terrace, Illinois-based Computing Technology Industry Association have indicated that they will begin lobbying in the spring to boost the number of H-1B visas. Nobody is yet making their position public, but the IT industry expectation is that the introduction of a bill would either keep the H-1B visa cap high or eliminate it altogether.

In the US, the IT industry is considered powerful and there are expectations that it could swing the verdict in its favor. Soon after the H1B quotes were enhanced in 2000, an editorial in the Christian Science Monitor noted, “Such generosity to one industry – albeit one driving the economy – is thanks largely to its increasing political clout. The industry gives campaign contributions to Democrats and Republicans in roughly equal amounts. The total will exceed $22 million this year, more than double the $8.9 million of four years ago.”

Not to be left out, the Indian media, too, have jumped into the fray to “protect” Indian interests. Just a week ago, the Economic Times, India’s largest-selling daily, for instance, splashed expert opinion from Sidney Weiss, president, US Customs and International Trade Bar Association, to the effect that legislation such as the New Jersey bill fundamentally “violates the provisions of the US constitution and the WTO agreement”. Weiss told the Economic Times that Indian companies or representative industry organizations could challenge the bill if it were enacted in the US and before the WTO. “The constitution does not grant powers to the states to enact laws that are under the realm of the federal government,” he said.

Weiss further said that the US Chamber of Commerce is interested in negotiating free trade agreements with about 12 countries, including India. “The federal government understands the importance of international trade and would not allow any adverse move,” he said. His statement is now being read by India’s IT industry as a proof of the federal government’s endorsement of offshoring, outsourcing and import of technical workforce into the US, even if the states are opposed to such a move.

Significantly, despite such statements, the issue is likely to hinge largely on how the US economy performs. As Vin O’Neill, senior legislative representative for the Institute of Electrical and Electronics Engineers, a Washington, DC-based professional group told COI Magazine, “If unemployment continues, Congress will be more attentive.” The institute’s 235,000 members hold the distinction of having lobbied Congress to study the effects of H-1Bs and offshore outsourcing.

The US president has also spelt out his priorities for the coming year. In his State of the Union address early this month, Bush termed improvement of the job market his “first goal” for the coming year and asked Congress to pass a $670 billion, 10-year tax cut. “We must have an economy that grows fast enough to employ every man and woman who seeks a job,” he said. “With unemployment rising, our nation needs more small businesses to open, more companies to invest and expand, more employers to put up the sign that says, ‘Help Wanted’.”

For India, any significant change in the US position on offshoring, outsourcing and technology worker imports could spell disaster. A NASSCOM survey on IT industry employment in India has projected a 24.4 percent growth in 2002-03, up from 522,250 jobs in 2001-02 to 650,000 IT jobs in 2002-03. Of these, 205,000 would be in IT software exports, 160,000 in IT enabled services, 25,000 in the domestic software market. Another 260,000 jobs would be in user organizations. NASSCOM has further predicted that the IT services growth would touch the magic figure 1 million IT jobs by the year 2008.

BPO, worth about $1.6 billion a year in India, has become an important driver of IT services in the country. Last year, India’s IT services as a whole grew 29 percent. This is the fastest in the world, but slow as compared to the over 60 percent growth notched during the previous decade. Interestingly, the 29 percent overall growth hides a variance. IT services, such as software development, grew only by 22 percent, but IT-enabled services, such as outsourcing, have notched an over 65 percent growth. Indian companies that have recorded phenomenal BPO revenues include Wipro’s Spectramind, HCL’s BPO subsidiary E-Serve, Mphasis’ MsourcE and Citigroup’s E-serve International.

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