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No effect of Mr. Obama’s tax reforms on India Inc.

Outsourcing to India has always been and always be on the higher side whatever the case may be. There are many reasons fueling this fact and the most prominent of them are: India’s cost-quality advantage, young knowledge workers and its time zone that are making companies not just from the U.S. but from around the world to outsource jobs to India. No company wants to go bankrupt. Every company knows that the survival of the fittest also implies in business. Every company wants profits. And one of the best ways to earn profits in these recessionary times is surely, yes you guessed it right…outsourcing!

Mr. Barack Obama seems to be oblivious about the fact that in the days of globalization, by introducing protectionist policies he would not solve any purpose. By introducing tax reforms, he may be able to revive the United States from the recession faster than expected and may be able to generate ‘few’ jobs in the field of market research, manufacturing etc. but surely wouldn’t be able to stop the outsourcing industry from flourishing. He should understand that it’s not about the U.S. anymore. The world works as a single unit with everyone connected to everyone in some or the other way. “I wouldn’t have prayed for his victory if I knew he would be a protectionist as he is today. There is a better way to do everything but I guess Mr. Obama likes the American way.” says a BPO employee who works in Gurgaon.

According to many industry experts, Mr. Obama is looking to fix loopholes in the U.S. tax system. At the moment companies that are creating more jobs in India or specifically “Bangalore” as highlighted by Mr. Obama in his comments are paying lesser taxes than the ones that are creating jobs in U.S. Under the current regulations, firms don’t pay taxes on the income earned abroad until they bring money back to the U.S. Mr. Obama wants to reform this part of the law to increase revenue of the U.S. government and lives in this illusion that there are more intellectual and more efficient people in the U.S. to do the same job done by the people of India. Well Mr. Obama, it’s time to wake up and see the obvious reality. There is no denying the fact that the U.S. citizens are losing jobs but the reason is simple. They are being paid anywhere between 500% to 1000% (Yes 1000%) more than their counterparts in India and it gets worse, they still aren’t happy. They want Lamborghinis and Porsches with a mileage of approximately 4kmpl (And they want India to cut on emitting green house gasses). They still sue their own company for giving them 5 minutes less for their lunch break. Even though it seems we are getting deviated from the topic here but if you examine, the last 4 lines have a deep meaning to them. These lines simply mean that it’s not just about the low cost that India is chosen as a favorite outsourcing destination, it’s also about the peace that we as Indians have maintained. It’s also about the rich culture and tradition that we inherit. It’s also about the smiles that are not fake and many such reasons. Now if Mr. Obama’s tax policy is bothering you and if you are thinking that why didn’t I become a doctor or an engineer, it’s inevitable that you will start to feel better and more positive after you give a thought to the reasons why the world wants to be connected to India and outsource work here.

The pros and cons
Let’s see the pros and cons of the statement to the companies in India and U.S. To begin with, Indian companies do not seem to be too perturbed over the proposal as they believe that this legislation is likely to impact companies that are headquartered in U.S. like IBM, Hewlett Packard, and Microsoft. Most of these companies earn more than 50% of revenue from outside
U.S. These companies are not only dependent on offshoring for cost purposes but also because of the talent pool that exists in India. Further, such a move by the president could make offshoring for American firms more expensive. Not only that, this view is contrary to the rest of the world, especially when Japan and Europe are
moving towards territorial system that taxes corporate profits within the country. This move can make the U.S. companies lesser competitive as compared to the companies in the rest of the world.

The legal outsourcing industry of India stays untouched!
Law firms and in-house counsel and attorneys wouldn’t be affected by the potential implications of President Obama’s policy that will seek to curb tax breaks on companies that outsource, but mostly it could affect relations with India, which is one of the world's biggest sources of Legal process outsourcing services. Even if it seems like a bad news, practically it’s not. Right now, by outsourcing jobs to the LPO industry in India, the law firms, legal counsels and attorneys in the U.S. are saving up to 50% to 70% on their cost. Even if there are no tax breaks, this figure would end up close to 30% to 50% which is still a huge figure and can overpower the thought of taking away jobs from the LPO industry of India

Mr. Pankaj Parnami, Founder Director, KPO Consultants says “The LPO Industry which is more robust than ever before would not be affected by the tax reforms. The lower costs and the high quality of service we provide from India will overpower these reforms and the overall effect would be nullified. I’m positive and put my money on the fact that there is no need to worry for India Inc. The only thing that’s required is that the people of this 1 trillion dollar strong economy will have to be optimistic and positive and not lose hope even if initially the road is bumpy. I see a very bright future ahead.”

The current economic climate is forcing the U.S. companies to find more ways to manage spending, and outsourcing is a time-tested and appropriate decision. It is a catalyst for review of spending and use of capital. For every company that chooses to keep business functions in-house because of social backlash or political threats, there is another one who finds that the financial and organizational benefits are compelling enough to move non-core functions out of their company and offshore. “The disparity between wage costs in the US and in leading offshore countries like India for similar jobs, output and quality is far too great to simply dismiss, especially when American CEOs have a fiduciary responsibility to shareholders.” says a top executive from a leading LPO firm.

In present scenario, the policy adopted by President Obama could only be seen as a sign of protectionism and short-sightedness. This move may yield results for some time to come but may hamper growth of U.S. companies at large and might even make them vulnerable to foreign acquisition. Also, such a contrary approach might delay economic recovery. Further, what remains to be seen is how this change will grow jobs in the U.S.