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India's Technology Industry Fears Cuts in Outsourcing from US

  • Anjana Pasricha

Many in India cheered Barack Obama's victory in the U.S. presidential election. But India's technology and outsourcing sector is watching cautiously to see if a new U.S. administration will implement policies that will cut down outsourcing from American companies. Anjana Pasricha has a report from New Delhi.

Over the last decade, Indian companies have flourished as overseas companies outsource work such as sales calls, technical help desks, accounting and software development to India. The country's huge pool of English-speaking graduates and software engineers work at a fraction of the wages paid in the West, helping to cut down the cost of doing business.

But there is some uncertainty if work will continue to flow from American companies at the same pace under a new U.S. administration. During his campaign, Senator Barack Obama said he will give incentives to companies that create jobs at home, and stop giving tax breaks to those that ship jobs overseas.

Indian finance minister, P. Chidambaram, remains optimistic that India's outsourcing sector will not be impacted.

"A comment here or a comment there about outsourcing etc. should not bother us," he said. "Once he is in office, he will realize that in an interconnected world, countries have to work together."

However, some industry analysts fear that U.S. businesses, already battling an economic crisis, will reduce work sent to countries like India. Much of the work is farmed out by clients in the banking, financial services and insurance sector - many of which are hit hard by the financial meltdown.

Others are optimistic that any slowdown in outsourcing will be short lived. The president of Business Process Industries Association of India, Samir Chopra, says eventually economic pragmatism will prevail, ensuring that outsourcing continues to flourish.

"There is a little bit of uneasy wariness in this entire process, but it going to be very short term. Eventually what would take over is the economics of the business ... they would have to necessarily outsource to reduce the absolute cost of doing business. So outsourcing definitely would bounce back," said Chopra.

Nearly 400 of the world's 500 largest companies outsource some work to India - and a large chunk of this comes from U.S. clients. Rapid expansion in recent years has helped the technology and outsourcing sector's earnings to grow to $50 billion annually. But in recent months, growth has begun to slow, and many IT and outsourcing companies expect lower profits this year.

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