Wrong foot

“Unlike John McCain, I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America”, an election promise Barack Obama fulfilled. The same Obama at one point agreed that outsourcing to India and China cannot be reversed.

America's challenges on economic front cannot be overcome by building "protectionist walls" Obama said. The country needs to focus on improving plight of the middle-class and investing in education opined Obama few months back, but what decision he took now is totally opposite of that. Obama said the US "can also create millions of new jobs by rebuilding our schools, roads, bridges, and other critical infrastructure that needs repair. Instead of focusing on those things the President of US came heavily on outsourcing.

Throughout his election campaign Obama outpoured his anger on outsourcing and assured people of US, he will stop outsourcing and in turn job losses in the country. However, we have to now wait and see how many jobs will be created in US with his latest decision? How far US firms agree with Obama and stop outsourcing?

To reduce tax breaks for US firms that ship jobs overseas, a decision is more towards collecting more revenues rather than stopping outsourcing. Obama move was to ensure that the large profits kept outside are also brought into the tax net. However, National Association of Software and Service Companies (Nasscom), an industry body maintains that the move is going to affect US firms more than Indian Cos as many US companies had subsidiaries across the world and that more than 50 percent of their revenues were coming from outside the US.

According to a McKinsey-Nasscom study, the Indian software and outsourcing industry employs some two million people, earning total revenues worth $52 billion, of which nearly $48 billion comes from exports. No need to say 60% of our revenues come from US. Naturally, Indian IT firms are worried and cautious in their approach. “The decision may actually end up reducing competitiveness of US companies with global operations when compared to their European and Japanese counterparts,” Nasscom said.

Obama’s Monday Tax reforms will have least impact on Outsourcing, especially US subsidiaries of Indian companies like Infosys or TCS. Lion’s share of earnings of these companies is generated in India not in US. So the so called tax reforms have no impact on them. As far as US companies are concerned, they huge amount of dollars by running a subsidiary in India simply due to wage differences. US firms may be forced to pay corporate tax on income earned overseas, but that could be peanuts compared to what they save outsourcing the work.

In the whole fiasco, Obama may fail to generate jobs by imposing restrictions this way on outsourcing as he promised!