The rise of Donald Trump to power means a lot to India. The question then comes to mind is what would happen to India’s outsourcing? Will American president's aggressive anti-outsourcing pledges become a reality?
It is hard to anticipate any certainty. But such uncertainty followed by his “buy American, hire American" outburst in his inaugural address is definitely agitating the captains of India's booming IT industry and professionals whose success until now greatly rested on America’s market.
India is the largest outsourcing destination in the world for the IT industry, accounting for nearly 70% of the approximately $130 billion market. The IT sector and the business process outsourcing (BPO) industry, which includes back-office operations, call centres and data transcription services, together employ about 10 million workers in India. More importantly, the industry has led India's economic transformation, altered the perception of the South Asian nation's role in the global economy and virtually shaped up a considerable part of America’s corporate sector.
One of the most significant promises that Donald Trump made to the people of America during his 18-month long and arduous political campaign was about bringing jobs back to the America.
This meant a huge reduction in immigration and designing off-shoring policies that would aim at significantly curbing the business activities such as outsourcing of work, movement of professionals etc to America. They travel to USA to perform those skilled and knowledge-driven jobs such as providing ideas in financial, consultancy, and scientific innovations.
If Trump follows such policies, then he is completely going against the ideals and promises that were made to promote free and fair trade in world economy. In essence, it is violating the fundamental principles and ideals of the World Trade Organisation (WTO).
Many would argue that President Trump’s protectionist ideas are bad for global trade and markets and it could impact India’s IT industry seriously. Currently, the US market accounts for more than half of the country’s IT exports.
And the industry’s concern is mainly rooted in the fate of the H-1B regime, a skilled-worker visa programme, which many Indian firms use to send their employees to the US to service their clients.
Stopping these Indian professionals would not probably create too many jobs for Americans. Because, most of these IT companies being located in America have to then employ local Americans.
Once the local Americans are employed, then they will definitely ask for higher wages compared to the Indian software professionals. Once American are paid higher wages, input cost of those products and services are going to cost more, hence the companies don’t become globally so competitive.
Once they lose their comparative advantage, they will lose most of their businesses. This is anticipated because there is a sense dignity of labour which is still respected among Americans.
Besides, sometimes it is felt that these American fears are artificially blown out of proportions. Many Indians who go there on work permit availing H-1B visa don’t leave there for more than six years or settle there to ask for green card. Many return to continue their work in the home country, because their primary employment rests here.
In fact, the Indian IT industry helps the US on both fronts. So going against outsourcing will make the US lose jobs, not create jobs. When Trump says 'buy American, hire American,' he should not make America less efficient, because protectionism will hurt not just the Indian economy but also the American economy.
That is because it is the efficiency of Indian firms and professionals that is making American economy globally competitive. Globalisation is so unique a process that has set in so deeply into the psyche of global economy that it is virtually impossible to reverse it.
One could protect and turn completely protectionist for a while as it happened during the great depression in 1930s, but slowly, the world economy experienced the fruits of gradual and liberalised free trade that became the driving force of globalisation and competition.
President Trump must also realise many of the American firms have gone to different parts of the world as MNC such as India, China and Asean (Association of Southeast Asian Nations) countries, where they have invested heavily in building plants, machinery and have employed profusely the locals.
They are there because in an era of globalisation and liberalisation, capital, labour, skills, technology and ideas – all of them move together to a place where they find the ultimate production cost cheapest such as China and to an extent India in terms of outsourcing.
This model indirectly has helped America to expand its business and in turn has made America rich. Turning protectionist at this time would be detrimental to the US economy. President Trump may think twice.
(The writer is Professor, Lal Bahadur Shastri Institute of Management, New Delhi)
Published 09 February 2017, 17:33 IST