Of late there has been a lot of hue and cry about the various so called protectionist policies enforced by the Obama administration. The most controversial ones include the heavy limitation of H-1B Visa holders for positions in companies utilizing the bailout funds and taking away tax sops on the companies that resort to outsourcing. But is it worth all the noise? Is it fine for our own Finance ministry to question and raise the issue of such policies at a time when their economy is doing worse than ours (comparatively)? Are we asking for too much?
Traditionally, Indian economy has been heavily dependent on IT outsourcing which in turn earns primarily from US firms kind enough to give them a chunk of their low level IT work. So when most of them have their neck deep into recession and debt, they would, beyond doubt resort to layoffs and cost cutting. And in any case, IT expenditure usually takes a hit and our firms start feeling the heat. Much like the Domino effect, any change or hit they take quickly affects our firms at home. So basically all the theory about our own economy being recession proof or de-coupled from the US economy is completely false as the backbone of the Indian economy is the IT outsourcing which itself is at the mercy of the US economy. So there you go- the connection; and the very reason why our Finance ministry boasts from time to time that we’re de-coupled and all that but also goes on to question the new changes in policy.
Let me pose a quick question here. When your own family members are starving, would you invite a guest or your neighbor to dinner? I guess not! Quite definitely your family comes first and you would pool in anything to save them first and only then attend to anyone else. Quite the case with the Obama administration as well, I would say. They are just trying to save American jobs at a time when the population is being laid off like crazy, increasing foreclosures and rising unemployment claims. If you happen to put the same analogy here, you would see how damaging outsourcing really has been. You can employ 4-5 Indians for the amount you might pay for one skilled American employee and there’re close to 500,000 Indians working in outsourcing firms. Not damaging enough? Is that not enough for them to shut their doors even temporarily to us who actually steal their jobs? Makes all the sense to me!
And what is all the big mess about the capping of US H-1B visas? For the benefit of those of us who do not know the finer details, let me just tell you that H-1B visa program was started for the benefit of American technology firms requiring talent not found locally. In other words, H-1B was initially started for companies like Microsoft, Google, Intel and the like. But the real beneficiaries of the program ended up being Indian companies like Infosys, TCS, and Wipro etc. What is the stark difference here? The H-1B was abused by these (mostly) Indian companies to further their own objectives and targets to strengthen outsourcing when the real parties used them judiciously in far lower numbers. If hard facts be put forward, Infosys and Wipro have received 4,559 and 2,678 H-1B visas each last year, while Microsoft was close to a 1307 and Google and Apple with just 207 and 70 visas each.
So what is so special about that? Both lead to loss of American jobs, one might be tempted to reason. The truth is that the difference is BIG. When companies like Google or Microsoft bring in their foreign staff, they usually stay there and work for quite some time before being sponsored for permanent residency- a road that usually leads to citizenship. The benefit here is that even though it is NOT the Americans who get the job, the taxes paid, patents filed and the expertise such foreign staff bring in usually works to the benefit of all parties involved- including the Government. It is perhaps on these lines that last year Bill Gates made his point that if the H-1B visa program be jeopardized, America’s status as a science and technology giant would soon come under question. Other noteworthy points in this regard are that whenever a company seeks to recruit through H-1B program, they’re not always required to prove the lack of local expertise for the position. They’re also required to pay the minimum wages, although most of the staff brought in by these American tech firms are paid more than just minimum wages!
Now, it’s not the same when an outsourcing company sends their staff overseas to client locations. Some say that it’s just a case of simple greed, but tech outsourcing firms are regularly known to under-pay their staff at client locations. Well, that is just the money. The real damage however, happens as most of the time these tech outsourcing companies send their staff to client locations and underpay them too. These employees learn tricks of the trade and then come back to India or their base country to do the same work thereby depriving the Americans of taxes and jobs. This might make a lot of sense to both the parties involve but definitely NOT the government, which still ends up bailing out companies and settles unemployment claims. And in light of the recent and ongoing economic downturn, this act does a lot of damage to a nation already on the brink of economic collapse. Now THAT should make sense as to why the lawmakers have made such a move.
Finally, why should we feel threatened or worried by all this? If our economy fails due to this Domino effect, it would show only carelessness and shortsightedness of ours. Why did we choose the easy path? Why did we choose service over innovation and products? Would it be fair of us to completely base our wellbeing on some other country’s economy? Can’t we do anything on our own? Why are we always dependent on some company for our survival? We’ve finally reached moon, but if putting our intellect to good use or even to save our own selves has been challenging of late, how effective are we? Above all, how SUCCESFUL are we?
I am not totally confused, what is an economy ? How does it grow ? How does it shrink ? What is money ? Everyday I am confused with new analysis and opinions. Will joining for a course in economics help ?
Comment by Kenney Jacob — March 15, 2009 @ 5:29 am
A very informed and interesting article. Things are getting more competitive thats for sure. There will be a time when we will take the big leap and the paradigm shift towards innovation will take place in the Indian IT Industry. Now given the state of indian higher education and research, infrastructure and awareness we will have to settle with status quo and will have to do the kind of work nobody wants to do in the US.
But even when we do release ourselves from this dependence, i fell we will find ourselves into yet another kindof depedence. Every country is linked with all other and there are bound be damaging ripples when an event such as this occurs once in a while. Even Japan and US questions now its links with the US, is that comparable to India-US offshoring relationship? No. If the economy of China tumbles and US gets a hit, im pretty sure the Americans would be asking the same questions.
@ Kenney
I really doubt a course would be of much help. Witnessing this great depression taking shape has only confirmed my convictions that it is impossible for one man to even graph a minuscule aspect of the world economy. I suggest you stick to reading and trying to connect dots, perhaps Wikipedia would suffice for the basics.
Comment by Anurag — March 15, 2009 @ 9:30 am
@ Kenney,
) and if you’re careful enough, it will all start making good sense.
Studying economics at this time would be like jumping from the frying pan to the fire! I’m no economist but the whole thing did turn me on. A lot of my analysis was purely based on observations and hard numbers. And as Anurag suggests, its best to just stick to reading( u may read more of mine if u wish to
Comment by The Nomad — March 16, 2009 @ 9:00 am
@Anurag,
Thanks a lot for your review. I completely agree with you when you say that now its more like we are FORCED to do whatever US doesn’t want to do.
There’s nothing called an absolute independece unless of course you’re talking about countries like DPRK ( they don’t have any money anyway). My point here is that right now we’re HEAVILY dependent on the US. How fair is that? Its more like we’re underminng our own capability to create jobs for ourselves. Japanese economy is undoubtedly heavily dependent on the US economy but in a completely different manner, I comprehend. Indeed, a hit in the Chinese economy is the last thing US treasury wants at the moment given the kinda money they’ve in circulation.
My fundamental point here is that perhaps if we can create good jobs for ourselves, we would not be begging.
Comment by The Nomad — March 16, 2009 @ 9:13 am
Traditionally, Indian economy has been heavily dependent on IT outsourcing
Really? The ravings of a guy who was born with a silver spoon in his mouth.. Look outside man..
Indians ≠ IT Guys..
The majority of Indians are still farmers.. You have doubt, look what happened to Mr. Naidu in your home state? The contribution of Agriculture to India’s GDP is still around 20-25% while IT may be around 5-8%. [Am not an economist..]
And heck yes, I still agree with you Mr. Wise guy..
Why did we choose the easy path? Why did we choose service over innovation and products?
Well.. I think some one should stop asking questions and start doing something.. And again the next question comes.. WHAT NEXT DEAR SIRS? That I leave it for Kenny to answer!!!!
Comment by talkingcomet — March 18, 2009 @ 4:35 pm
@TalkingComet
First of all, the article is not written by me. Its from a friend of mine.
Regarding your comments, you may have pointed out a factual mistake. But look at the economies of developed countries and see how much of contribution to GDP is from agriculture. You will be surprised to see that its mostly a single digit number. The future is services, and not even manufacturing.
Comment by Kenney Jacob — March 19, 2009 @ 10:57 am
@talkingcomet
WOW…. thank you for bringing me back to earth or more specifically to India…I for one have NOT come across a SINGLE instace where the stock markets have gone up or crashed because of a crop failure or lack of rains…I never said Indians=IT guys.. I just said MOST of EDUCATED Indians= IT guys…have a different opinion on that one as well?
And usually stock markets serve as a good indicator of health of the economy in general..So I wouldn’t be mistaken if I say that the economy is not firing on all four cylinders if the stock markets aren’t doing too well…
My job here is to merely draw up an analysis and let you guys decide…So asking questions is a good way of doing that. Thanks for your time and energy anyway. Appreciate it.
@Kenney,
You’re right on both the counts.. The agriculture one AND the manufacturing one..Personally, I jsut DO NOT know if services is indeed the way forward. Whatever it is, I just hope it ain’t outsourcing…
Comment by The Nomad — March 19, 2009 @ 3:12 pm
Great post. I would not blame americans cutting work visas for companies getting government aid. Its tax payer money that bailed out the company and its these tax payers that loose american jobs to employees from abroad. Absolutely fair deal!
Comment by Sidharth Vijayan — March 29, 2009 @ 4:56 am
Some random thoughts,
“US firms kind enough to give them a chunk of their low level IT work.”
I don’t think it was out of charity or the goodness of their hearts that the US outsourced their low end IT jobs, we added value to their system by reducing their cost and hence letting them earn higher returns on their investment.
Hence during a recession, at a time when profits are dwindling, does it make business sense to cut an input that cost x and then add an input that cost 5x which both provides the same value addition. I don’t think so.
Hence what US doing right now, in my opinion: is not sustainable. One thing good about the new economy is that no one can really guide it the way they want it. Not even the big mighty US Gov. Even though they would’ve loved to get all their call center seats filled by American, it is impossible because no day would americans be ready to work at Indian rates.
And sooner or later all American companies will have to outsource their low end jobs to India else they will loose their competitive advantage to companies from other countries that do outsource.
So what should US be really doing?
In My opinion..Let them all outsource…don’t bother to hold on to all that silly call center jobs. Instead invest more on their new generation’s science education. Re enact the whole cold war “Man on the moon” drama which created the highest number of scientist in US. Make their citizens capable of leading their companies from the top with innovation and enterprise. Don’t waste their time on these silly ‘outsourcable’ jobs. Outsource everything they can and focus only on their strength: To Innovate
Now I know right now thanks to the recession and the job losses all this seems a little too difficult to implement. But I am sure in 5 years time, this is what US would be doing: (Creating more innovators and outsourcing like hell!!) Else they’ll go down. And I don’t think they are that stupid
Comment by Jithin — April 23, 2009 @ 3:38 am
You said it Jithin. I was just imagining our own plight when India would be branded a global back office. Coz I’ve known an IIM-K guy working at GENPACT doing some low level accounting stuff for good money. I wonder if Indians are only guided by the lure of money.
Comment by The Nomad — May 2, 2009 @ 2:10 pm