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India's Software Industry Slams Ban by US State of Ohio

  • Anjana Pasricha

India has criticized a ban imposed by the U.S. state of Ohio on outsourcing of government projects to offshore locations. India feels this signals the rise of protectionist sentiment in the U.S.

The global recession had reduced the flow of outsourcing work from companies based in Western countries to Indian Information Technology (IT) companies. But in the past year, the industry has recovered from the slowdown and posted good profits.

However a recent ban imposed in the state of Ohio on off shoring of government IT and back office projects has raised fresh worries. This means that American companies which outsource work to overseas locations cannot bid for state government projects. Ohio governor Ted Strickland said that sending work abroad deprives the state of employment opportunities.

The ban by Ohio does not directly affect India's software sector, which mostly earns its revenues from large private sector companies.

However, India says the measure violates the practice of free trade, and has slammed the step as discriminatory.

A senior government minister, Kamal Nath, says the challenge for India is to face the rise of protectionism.

"Outsourcing is an economic issue," he said. "It is not something they do us as a favor. U.S. companies to remain competitive must be able to outsource.'

India says it will raise its concerns at a high-level trade policy meeting between the two countries to be held in Washington later this month.

The Indian industry fears that calls for a ban on sending jobs overseas could spread to other states in the U.S. which is facing high unemployment.

Those worries intensified after President Barack Obama recently said that for years tax breaks have encouraged companies to create jobs in other nations. He said he proposes to expand tax credit to firms for research and innovation done in the U.S.

Kris Gopalakrishnan, who heads India's second largest IT company, Infosys, says only a brisk global recovery will ease worries about the loss of jobs.

"The medium to long term solution obviously is the global economy improving, unemployment coming down," said Gopalakrishnan.

The $60 billion Indian IT industry earns nearly two-thirds of its revenues from companies based in the United States.

The industry has flourished by doing a variety of work such as accounting, payroll or software development for many of the world's biggest companies. India's vast pool of skilled software engineers whose salaries are far lower than those in the U.S. or Europe make it possible to do the work for a fraction of the cost in the West.

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