By Raja Murthy
Nothing lasts forever, and India's US$63 billion outsourcing industry boom has crashed into this basic reality, the global downturn in business activity combining with US efforts to rescue the American economy. These include altering policies from which India had benefited when George W Bush ruled in the White House.
President Barack Obama's promised move to reverse a trend that saw 2.6 million US jobs lost in 2008, the highest in more than 60 years, is generating an Indian corporate and government response that is both outlandish and significant.
"We are already witnessing worrying signs of protectionism in the world's biggest economy," declared substitute Finance Minister Pranab Mukherjee, at present nursing the finance portfolio in the absence of Prime Minister Manmohan Singh, who is recovering from heart surgery. "We need to argue against this trend at the international forum."
That's rich. An Indian government complaining of protectionist trade policies sounds a bit like al-Qaeda and the Taliban grumbling of violence and intolerance in the world.
The irony seems lost on Indian trade bodies such as the Federation of Indian Chambers of Commerce and Industry (FICCI) and the National Association of Software and Services Companies as they complain about a foreign government withdrawing tax subsidies for its own companies.
"If significant tax incentives were taken away from US companies that outsource work to more cost effective locations, then Indian service providers would certainly feel the impact, as less work would be contracted out," FICCI officials told Indian media.
In other words, India Inc admits that the outsourcing boom that benefited so many of its companies and workers was caused not so much by high standards of work so much as by US companies making hay through tax rebates that accompanied hiring cheap overseas labor at the cost of trimming local jobs in America.
Leading US companies that have outsourced jobs worldwide include Microsoft, IBM and Hewlett-Packard to Pepsico, Motorola, General Electric and Boeing. The US accounts for 60% of India's information technology and business outsourcing business. Britain provides another 18.5% of the market.
With the downturn and a change in White House policy, an estimated 1,000 US companies involved in outsourcing jobs overseas may be forced or encouraged to allocate more work to outfits at home. US unemployment rose in January to its highest since 1992, hitting an official 7.6%.
The prospects for India's outsourcing party to continue at high volume were remote, given the challenge to the White House of increasing employment in US while rewarding US companies that export local jobs for cheaper wages abroad.
Yet sight of concerned India Inc waving the banner of "free trade" to protect that outsourced work is remarkable. Usually, Indian negotiators at global forums such as the World Trade Organization (WTO) see "free trade" as a dirty term, a ploy by Western interests seeking to increase exports to less affluent countries such as India, not least in the agriculture sector.
In successive rounds of failed WTO talks, developed economies, including Japan but also supported by China, have blamed India for protecting its agricultural markets. India routinely blames the US and the European Union for subsidizing local farmers, and thereby making their farm produce cheaper.
"I come from a country where 300 million people live on $1 a day and 700 million people live on $2 a day," Commerce and Industry Minister Kamal Nath said last July after another failed round of WTO talks. "So it is natural for me, and in fact incumbent upon me, to see that our agricultural interests are not compromised. You don't require rocket science to decide between livelihood and commercial interests."
But Kamal Nath and his ministerial colleagues are open to the charge that they are involved in sanctimonious posturing. Their government, after five years in power, has done very little to help those 300 Indian million farmers living on $1 a day, apart from announcing a controversial $15 billion bank loan waiver for farmers.
Critics condemned the write-off as benefiting richer Indian farmers, who use banks for loans. It is of little use to the indebted poor and landless farmers caught in the clutches of money lenders and whose lending is not included in the loan project.
More than 100,000 Indian farmers in debt have committed suicide in the past decade, and the Manmohan Singh government has not been able to end the tragedy.
The Indian government and policymakers are also open to the challenge of whether an Asian worker's right to a livelihood is superior to that of a bread winner of a European or American family, whose job is lost because his bosses figure they can earn more profit by replacing him with cheaper wage earners in India, China, the Philippines or Malaysia.
Worse, India's newly declared love for free trade, at least when it concerns outsourcing, could boomerang at the next round of WTO talks and weaken its more justified defenses in protecting the harried Indian farmer threatened by agricultural imports. The WTO Committee on Agriculture next meets on March 12.
Developing countries such as India must pay more attention to confronting the challenge of balancing trade instead of hunting with the free-trade hounds while running with protectionist hares and then lamenting when hit by contraction. If India Inc and trade policymakers stare at the mirror, a picture of double-standards might glare back.
For instance, on January 23, the Directorate General of Foreign Trade at India's Commerce Ministry imposed a six-month import ban on Chinese toys, without officially stating reasons. China has threatened to protest against the ban at the WTO.
The grievance and India's double-talk comes as the country' trade balance is under pressure. Export targets, including outsourcing revenue, have been pegged at $200 billion for the fiscal year ending at the end of this month. India's imports in the April-December period grew 31.5% to $225.8 billion, while exports gained only 17.1% to $131.9 billion.
Indian exports, which grossed $63 billion in 2003-04, touched $162 billion by 2007-08, with an average annual growth rate of over 25%, according to Indian governmental statistics.
On February 26, Commerce and Industry Minister Nath outlined how much India's trade pattern is changing. "The increased economic activity has resulted in the generation of around 140 lakh [14 million] new jobs in the export sector," Nath said on February 26. "Our exports have diversified and grown."
Exports have increased nine-fold to Brazil, seven-fold to Pakistan, five-fold to Mauritius, four-fold to Egypt and Vietnam and three-fold to Singapore and Turkey, he said. "Today, Indian exporters are exporting to almost all the countries in the world, including such places as the Marshall Islands, Greenland, Barbados, Costa Rica, Nicaragua, Burundi and Somalia."
The new Indian export empire is therefore waving the free-trade banner. Indian-born British peer Lord Swaraj Paul knows all about the battle against protectionism. In the early 1980s, Indian industry leaders, for whom protectionism then equaled patriotism, demanded successfully that the government in New Delhi block Swaraj Paul's UK based-Caparo Group from taking over an Indian company, DCM Escorts.
Paul revealed in an interview in 1999 that it was the Reserve Bank of India and its then governor, Manmohan Singh, now the prime minister, who closed India's markets to him in 1983-84, and smashed Caparo Group's takeover plans.
"I had hoped when I invested money that this is what India would gain," Swaraj Paul told Asia Times Online. "Unfortunately at that time a lot of people thought too narrowly and missed the boat. I am sure they will now realize that every country has to gain with a more open economy."
How much, then, should a national economy be opened - how much access to one's own home should be given to a welcome guest without violating the privacy of the host. Free trade has to be fair trade, and the failure to find a necessary balance haunts successive rounds of failed WTO talks.
Infosys Technologies, India's second-largest computer software company, and its leading rivals in India reflect the country's outsourcing success. Bangalore-based Infosys was born in 1981 with seven people investing $250. After two decades, it's a $4 billion company. Infosys reported $510 million gross profit for the financial quarter ending December 31, 2008, compared with $455 million in the same period a year earlier.
A dip of say $100 million in profits, as the US seeks to curb outsourcing through limiting tax benefits, won't kill Infosys. And the difference could mean 1,000 otherwise jobless Americans having the means to support their families. Any outsourcing reverse for India and Asian neighbors in the near future could merely be a sign that the pendulum of fair trade is swinging back again in favor of countries of origin.
Free trade without fair trade is an impossible myth. Instead of grumbling and threatening, India's Inc would do well to adapt by exploring newer markets and revenue sources.
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