Written by Sabapathy Narayanan.

A consultant specializing in services, products & marketing – Sabapathy is a rainmaker for technology and telecommunication start-ups. Sabapathy writes on software trends, issues, producteering and services.

I can understand Obama’s standpoint. It is the trade union folks who campaigned so very effectively for Obama and they are to be protected, but it goes against all the principles and policies that America has stood for all these years. America has always been a proponent of free enterprise and globalization. After all, it is a country built by immigrants by and large. All of this is changing because of the protectionist attitude showcased now.

Sample these comments from Marc Faber on the US economy.

“The federal government is sending each of us a $600 rebate.
If we spend that money at Wal-Mart, the money goes to China.
If we spend it on gasoline it goes to the Arabs.
If we buy a computer it will go to India.
If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala.
If we purchase a good car it will go to Germany.
If we purchase useless crap it will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US.
I’ve been doing my part.”

These are really extraordinary times for the Americans as well as the President but these cutbacks on tax sops are an extreme step. This is more a populist move that we are used to in Indian politics. Let us dwell on how this affects Indian corporations. I would say that the effect will be huge, because close to 50% of the Indian service exporters revenue comes from the US and it is 50% of $100 billion economy that we are talking about and the impact necessarily will be huge.

The good thing is that the existing contracts don’t get affected, but if transactions don’t increase, then transactions cease to exist over a period of time. Fortunately, this doesn’t affect import of finished goods or this is what I assume it is, lest Americans will find it difficult to manage considering the luxuries that they are used to.

Let us look at how things will evolve assuming US goes ahead with this proposed cut back on outsourcing.

• Firstly, it is unfair to all the US MNCs for their profitability will get affected considerably. Every additional dollar that US makes should invariably contribute towards more jobs in their country. I don’t know if I am right here.
• Assuming that they cancel issuing work permits to skilled resources, then those jobs will also go to Americans. Mind you, these are expensive resources and it would affect profitability. In due course of time, there will be more work than the number of people available to do them even at a premium.
• There will not be an alternative for the US but to outsource again. By then, all these companies in developing economies that are dependent on US today, would have shed their baggage and would have moved their business elsewhere. Hence their services will also be available only at a premium and the cycle will continue.
• Additionally, most products made in the US don’t get consumed in the US and close to 90% of it gets exported. US definitely is not a self sustaining economy. Americans are not used to living frugally(relatively), whereas the developing countries or the so-called third world countries have seen difficult times in the past and will manage.
• If the majority of global population, which is India and China, decide to go the Gandhian way, “Videshi Chhodo, Swadeshi Apnao” (Shed foreign, Embrace local) , then the US economy will get into further recession and their economy will be in doom, but they would get to keep their jobs.

Considering all these implications and the impact that it is going to have on the Indian service sector, it would be wise for us to wait and get to see the full account of what this really means before looking at alternatives. There will be heavy lobbying that will happen in the US as well and the industries there will have to impress upon their government to allow things to get stabilized, instead of pushing them deeper into trouble.

Tags: Free Enterprise, Obama, Outsourcing, Service exporters, tax break, us corporations, US Economy, US Enterprises, US Populism, US Tax Code