The Telegraph
Since 1st March, 1999
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Software czars shaken after US stab

New Delhi, Jan. 24: India’s software moguls seem shell-shocked by a US Senate legislation banning subcontracting of government jobs outside the US — a move that will dam up a lucrative portion of the flow of business process outsourcing (BPO) contracts to Bangalore, Mumbai and Gurgaon.

“We are dismayed,” said Kiran Karnik, president of the National Association of Software and Services Companies (Nasscom) which last year launched a public relations exercise to blunt the rising tide of resentment against India for spiriting away call centre jobs in the US.

This is the first stab at a US federal law to stop the outsourcing of government contracts to countries like India. Until now, lawmakers in 10 US states — California, Connecticut, Florida, Indiana, New Jersey, Michigan, New York, North Carolina, Wisconsin and Washington — have attempted a similar legislation but with little success.

Scrambling to limit the setback caused by Friday’s vote, Karnik said: “We understand that the bill is limited to the period up to September 2004 and only covers contracts by two government departments — treasury and transportation. The business impact of such a move on the Indian IT industry will be very small as the share of US federal government contracts in the export of IT software and services from India is less than 2 per cent.”

The total IT software and services exports from India was $9.5 billion in 2002-03.

US President George W. Bush, who is seeking re-election later this year, has been under fire over the loss of 2.6 million jobs during the four years of his presidency. The shift in call centre jobs has turned into a huge emotive issue in the run-up to the election.

John Kerry, leading Democrat presidential hopeful after the Iowa primaries, recently said he would “close every single loophole that gives companies incentives to move jobs abroad”.

Bush has been trying to ensure that his re-election campaign doesn’t get swamped by the vitriol over the issue — and is unlikely to overturn the US Senate’s verdict.

“This bill is yet to become a law, and we hope that wiser counsel will prevail,” Karnik said.

Pavan Duggal, a cyber law counsel, said: “If the US federal bill becomes law, it is likely to provide a blow to the vibrant growth of the outsourcing industry in India. A major chunk of the BPO work, which relates to the US government contract work, will be legally impacted as that comes in the form of subcontracts from American companies.”

The proposed bill is based on the rationale that as the source of US federal government projects is public money, it cannot be re-directed through subcontracting or outsourcing.

The bill is pending before Bush for his signature. Once it is signed, this will have to be implemented by all states.

Raman Roy, chief executive officer of Wipro Spectramind, said: “I don’t think this as an issue and we should not read much into it. We need to examine if such a legislation for any other product or service was done in the US and its results.”

Kris Gopalakrishnan, chief operating officer of Infosys Technologies, said: “This bill concerns subcontracting work on government projects. Since the work Indian companies currently do for the US government is not much, we see the impact to be minimal…. However, as an industry, we have to watch the situation.”

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