Should they kill the goose for the egg?

 Should they kill the goose for the egg?

By Gopal K Agarwal,

The ban on outsourcing may also be a sign of weakening of American confidence in the strength of dollar. The US has been running up higher and higher deficit.

 A succession of US visitors has told us that India is one of the most closed economies in the world. This is partly an attempt to legitimise anti-outsourcing legislation. The conventional test for gauging openness is tariff structures, on which India scores good as per WTO standards. New Delhi has strongly conveyed to Washington that any linkages of a quid pro quo in outsourcing would not be acceptable to it. It also holds the view that outsourcing is a commercial activity and should not be seen as a bilateral and hence not bedevil ties between India and the United States.

Americans were earlier in a position to win competition and control economies of other countries through monetary policies. They were vehemently establishing institutions such as IMF, WTO, GATT and World Bank to promote their interest by pursuing other countries to open their economies and remove trade barrier. When international trade agreements were extended to agriculture and services sectors, in which developed nations were not very comfortable and started loosing in competition, they started shouting anti-liberalisation slogans. Once this reverse process starts. it will not take much time for other nations to follow. US will be the biggest looser in the whole process. The US economy is based on accessing world markets. One cannot ban outsourcing of business process but continue to have access to world markets and international demands. US ban on outsourcing will have serious backlash.

Business process outsourcing (BPO) is a process through which some business processes are outsourced to other countries where they can be performed at a cheaper rate or at a better quality. This helps in globalizing national economies. Outsourcing depends on labour arbitrage. Per capital income of different countries varies.

Until national income of countries come on parity, these arbitrage opportunity will remain.

With the opening of the world economy and integration of international trade, BPO has created vast opportunities for the developing countries due to availability of cheap and skilled labour. India is considered to be a major beneficiary of this process. Take any field where knowledge is involved, India has the potential to become a global giant and an economic superpower. India has several advantages. Owing to availability of cheap and highly educated labour, the cost difference at which we can provide services and many commodities of comparable quality will put the other world at a great disadvantage.

India has cost-cum-competence advantage in professions such as law, accountancy, design, engineering, tax consultancy, financial and IT services. Doctors, MBAs, chartered accountants, nurses, lawyers and many other professionals are available in India at a much lower cost than the world over. Many multinational companies are setting up their R&D centers, BPO facilities and product development centers in India

 Recent technological revolution in the field of telecommunication etc. has put our infrastructure at par with global standards. India's vast pool of English-speaking manpower, coupled with its educational system and training programmes, has helped transform the country into a global outsourcing superpower. The rapidly growing BPO industry has virtually turned the country into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants. As Indian training institutes churn out tens of thousands of computer literates every year, the vast majority has jobs waiting for it with the local firms rushing to spread wings to offer services at sharply lower rates.

On the back of these English-speaking, tech-savvy. Cheap manpower, India's IT market has grown from $1.73 billion in 1994-95 to $16.5 billion in 2002-03. The country's software exports were able to grow at 26 to 28 per cent during the current fiscal year ending March 2004

Now suddenly we hear anti-globalisation noises in America. Recently, several legislations have been passed in US that seek to deter the outsourcing of work previously done in the US states to developing countries. It seems strange for a country that in the past had been harping so loudly on opening economies without international trade barrier, to turn conservative in its approach.

The ban on outsourcing may also be a sign of weakening of American confidence in the strength of dollar. The US has been running up higher and higher deficit, which has crossed half trillion dollars this year. Earlier, this was being financed by attracting global currency reserves. The central banks world over were keeping their currency in the form of dollars, thereby increasing the demand for dollars and keeping it strong. Now other currencies are gaining strength and dollar is weakening. A national debate is required so that a consensus can be built on capital account convertibility and delinking of the rupee-dollar exchange rate. We have huge foreign exchange reserves: we may think of delinking rupee from dollar and allow it to float freely.

US has to understand that good economics should not be sacrificed at the altar of short-term policies, as said by our Prime Minister Atal Behari Vajpayee. He further added that it was somewhat perverse that Americans should turn protectionist and thus reinforce anti-globalisation crusades at a time when developing countries like India had successfully handled the political economy of resistance and had begun to open up.

Even Alen Greenspan, Chairman of Federal Reserve, said that the efforts to protect OS jobs through legislation could end up backfiring. He further said that US had a choice of erecting walls to foreign trade and even discouraging job-displacing innovation but this would surely slow the pace of competition, Initially tensions might appear to ease but only for a short while. Further US companies have little choice, if they don't cut costs by outsourcing, they will rapidly become uncompetitive comparison to those companies that do. In that case many more US jobs will be lost as these companies shut down. Off-shoring is still only a small component of the business of many US-based companies.

Outsourcing is a two-way process, of which India was beneficiary. The world outsourcing market was estimated to be about five trillion dollars in 2002, according to Outsourcing Research Council Shri Colin Powell, the US Secretary of State, said that outsourcing is a reality of 21st century and an opportunity for both sides. Nearly 20 per cent of the total business is constituted by the IT and ITES market, which is growing at about 15 per cent per annum. Of this, India receives only about two per cent of the work, which indicates the huge potential. However, in a simultaneous reverse process, some of the best and biggest Indian companies are outsourcing strategic IT functions to some of the global companies.

Strategic outsourcing is in fact the fastest-growing segment in the Indian IT market as seen from the series of deals announced in the last few days. A notable deal is the one that struck in the recent past between Hewlett-Packard and Bank of India for over Rs 680 crore. It is also clear that global vendors have established their expertuse and experience in handling long-term, complex outsourcing needs of Indian companies to enable business transformation. It is not a sheer coincidence that strategic outsourcing is being opted by Indian companies at a time when the BPO phenomenon is at its peak. Indian non-IT companies are taking to outsourcing as they are on the lookout for vendors with the best domain knowledge. In simple terms, this is just a manifestation of globalisation.

But America's selfish mentality is evident everywhere. Until America did not feel the heat of terrorism, it ignored terrorist activities of some countries in the name of freedom struggle. As soon as the heat turned towards USA all forms of terrorism becarne bad for the world. Similar is the case with international trade. Now that USA's interests are clashing, it wants to wriggle out of agricultural and services sector agreements under WTO. In this unipolar world it is important that USA starts looking at the whole world neutrally.

(The writer can be contacted at gopalagarwal@hotmail.com)