Reacts With Dismay To
US Legislation On Outsourcing
By Kranti Kumara
17 March, 2004
World Socialist Website
ruling elite and media in India have reacted with a mixture of dismay
and anger to the spate of legislative activity in the United States
aimed at banning overseas outsourcing or offshoring of government contracts.
Several states, such as Colorado, Wisconsin, Indiana and Minnesota,
have introduced legislation to ban the offshoring of such contracts.
The latest was the recently passed US Senate bill banning private firms
from outsourcing federal government contracts overseas. This measure,
attached to a $328 billion omnibus appropriations bill, was sponsored
by Ohio Republican Senator George Voinovich in a transparent attempt
to bolster the Bush administration during an election year. Not to be
outdone, Democrats have introduced a Jobs for America Act
in the Senate that requires corporations to warn employees and communities
before moving jobs overseas.
None of the bills
introduced in any of the state legislatures has garnered enough votes
for approval. Despite the public outcry over the loss of information
technology (IT) jobs, this lack of approval implicitly demonstrates
the support US corporations enjoy among the legislators. The only bill
to succeed so far is the one introduced in the Senate. Even this bill,
however, is scheduled to expire at the end of the current fiscal year
on September 31, 2004.
Despite the public
rhetoric by both Republicans and Democrats, important sections of both
parties are big supporters of offshoring, as it increases the profits
of major corporations. The US Chamber of Commerce and many corporate
backers of both major parties such as IBM, Dell, HP and Sun oppose such
legislation. In fact HP/Compaq CEO Carly Fiorina went so far as to arrogantly
declare that There is no job that is Americas God-given
The Bush administration
in its annual economic report praised overseas outsourcing as a benefit
to US economy. It should also be remembered that the Bush administration,
with the support of the US Congress, has plans to outsource 425,000
out of 1.8 million federal jobs to cut labor costs, the precise argument
used by US corporations to justify offshoring.
In addition, despite
the loss of many IT jobs in the US following the 2000 crash of the technology
sector, Congress increased the annual allocation of H1-B visasintended
for temporary importation of skilled foreign workers when US workers
are unavailablefrom 65,000 in 1997 to 195,000 in 2003.
The loss of jobs
due to offshoring has become a central political issue in the presidential
election. The Democratic Party, with the support of the US labor unions,
is trying to utilise the terrible reality faced by displaced workers
for political gain. It wants to posture as the defender of US workers
by trying to erect legislative barriers.
Reaction in India
the Indian ruling elite reacted very negatively to the Senate bill,
even though the immediate impact of the legislation is minuscule. US
federal government contracts amount to a very small percentage of total
Indian IT industries export revenue.
The Indian IT industry
representative, the National Association of Software and Service Companies
(NASSCOM), posturing as a new champion of free trade, stated: In
an era of global free trade, protectionist measures in any country are
unlikely to last long, as witnessed in the recent lowering of customs
tariffs by India (far more than those agreed upon at the WTO) or the
withdrawal of anti-dumping measures on steel by the US. Referring
to future Word Trade Organisation (WTO) negotiations, Indias Information
Technology Minister Arun Shourie reacted by saying, I feel this
would worsen prospects of multilateral negotiations in trade.
The major Indian
daily newspapers uniformly editorialised against both the legislation
and any further moves in that direction. The Economic Times of India
stated somewhat confidently, Now that most companies realise the
huge savings that can be squeezed out of outsourced operations, the
rush to move some jobs out of high-cost US to places like India can
only increase, irrespective of what senators may think or do.
The Hindu, on the other hand, advised Indian companies to play
hardball and weaken the resistance by improving the quality of
During the recent
visit of US trade representative Robert Zoellick to India to garner
support for the reopening of the previously collapsed WTO Doha negotiations,
India bluntly told him that the prospects for these talks were set back
by the actions of the US Senate. For his part, Zoellick informed his
Indian hosts that they have no right to complain, as India has not become
a signatory to the agreement on government procurement of goods and
services. This was an agreement that the US and Europe tried to ram
down the throats of other countries during the September 2003 WTO negotiations
in Cancun, Mexico. Zoellick further demanded that India open up its
financial and agricultural sectors to foreign competition if it wants
to gain US technology jobs.
Realising the importance
the Indian elite attaches to the technology sector, the Bush administration
undoubtedly plans to use the domestic backlash against offshoring to
wring concessions from India in areas where the US corporations hold
a distinct advantage. The opening up of the agricultural sector in India
to US agro-business is especially sensitive, given its potential to
bankrupt millions of impoverished marginal farmers, forcing them to
migrate to already overcrowded cities.
The Indian IT industry,
whose US revenue amounts to 71 percent of total Indian IT exports, is
concerned that this bill may set a precedent. The Indian ruling elites
anxiety with legislative developments in the US is palpable given its
great ambition to transform India into a global giant in knowledge-based
industry. They hope to duplicate Chinas success in attracting
manufacturing capital by becoming the destination of choice for global
investment in information technology and R&D.
From bodyshops to IT behemoths
From modest beginnings
as bodyshops supplying cheap Indian IT labor to major US
corporations, the Indian IT industry has now become a global contender
for software services. The frenzied investment in the technology sector,
especially in the latter half of the 1990s, created a shortage
of labor in the technology sector.
To meet this shortage,
US corporations, such as IBM, Microsoft and Sun, signed contracts with
Indian IT corporations, which brought over their Indian employees, using
the greatly expanded H1-B visa program, for the duration of projects.
Since these programmers were employees of Indian companies, the US corporations
were not required to pay Social Security taxes and other workers
benefits, thereby realising massive labor cost-cutting. Some estimates
place these savings to US corporations as high as 80 percent
of the amount they would have spent using US programmers.
The Indian IT industry
had a crucial advantage over its rivals from other countries. It had
a large pool of English-speaking engineering graduates, which other
countries such as Russia and China lacked.
By paying its employees
Indian salaries of less than $200 per month supplemented by a modest
US living allowance, the Indian IT industry was able to rake in huge
amounts of profit. Its revenue increased from a modest $150 million
dollars in 1994-1995 to more than $5.3 billion dollars in 2000-2001.
Its revenue per employee also exhibited a similar growth rate, increasing
from around $10,000 per employee to as high as $50,000 today. This massive
growth in overseas revenue has now spawned a large Indian IT industry
comprising 5,000 companies employing more than 700,000 employees.
Despite the Indian
IT sectors amounting to less than 3 percent of Indian gross domestic
product (GDP), it enjoys unparalleled political support from the Indian
Government. This sector has exhibited dramatic growth rates of more
than 45 percent per year from 1999 to the present. NASSCOM projects
Indian IT industry revenues to increase from the current $16.5 billion
for 2003 to more than $70 billion by 2008.
The growth of offshoring
Following the collapse
of the technology sector in 2000-2001, many US corporations desperately
sought to cut costs. While previous post-recessionary periods resulted
in an increase in domestic employment, the current period, by contrast,
has resulted in a loss of high-paying domestic jobs, many of which have
moved overseas. Indian firms have especially gained from this move by
US corporations, and consequently, Indian IT firms such as WIPRO, Tata
Consultancy Services (TCS) and Infosys have grown into large corporations.
to diverse services including call centres providing technical support
and credit card services. Many US financial corporations including Citigroup
and Bank of America have offshored financial services such as clearance/settlement
of credit/debit transactions. These jobs, termed Back Office Operations,
have been growing in India at an exponential rate from $565 million
in 2000 to $2.4 billion in 2003. By 2006, it is estimated that Indian
call centres will employ a million workers.
With an estimated
50 million to 100 million workers unemployed in India, call centres
are among the only jobs open to young educated workers. The long and
irregular working hours as well as continuous monitoring of performance
make these jobs especially stressful and have resulted in a high job
The Indian IT industry
has a huge pool of engineering and computer science graduates from which
to recruit. The salary of an Indian graduate with an advanced engineering
degree from a top university such as the Indian Institutes of Technology
does not exceed $12,000 per year. India annually churns out up to 151,000
engineering graduates and around 100,000 information technology graduates
from its 900 colleges affiliated with 250 universities.
Given this huge
pool of graduates, the competition for technology jobs in India is fierce,
and Indian companies exploit this gratuitous gift fully. Most of the
entry-level graduates are paid as little as $300 per month and are frequently
expected to work longer hours without compensation for six days a week.
During job interviews, these young workers are bluntly informed that
they are expected to put in extra hours despite having been hired for
eight-hour workdays. If they demur, they are informed that others will
take their place. Many of these young workers log in more than 16 hours
a day and frequently burn out in a few years, requiring hospitalisation.
Once uncommon, depression now afflicts many young workers, whose average
age is only 26.5 years.
Many large US corporations
have also started moving highly skilled research and development jobs
to India. GE has opened the $80 million John F. Welch Technology Centre
in the southern city of Bangalore. This centre in Indias Silicon
Valley has an army of 1,800 engineers, a full quarter of them holding
doctorates. They are performing research in such advanced fields as
computational fluid dynamics, electromagnetics, power electronics and
composite materials. This is the largest of such facilities belonging
to GE Global Research outside the US.
Corp. has opened a $40 million dollar facility in Bangalore and plans
to design the next generation of both Xeon and Centrino processors.
Other corporations doing large-scale research include Oracle, IBM and
Despite the Indian
financial elites focus on the technology sector, the vast majority
of the Indian population lack access to even good drinking water. Seventy-five
percent of Indias population is rural, and the growth in the technology
sector has brought an increase in social polarisation between the relatively
narrow proportion of the population that is urban and the predominant
The offshoring wave
is accompanied by several ominous statistics and does not augur well
for the future of even highly skilled jobs in the US. The Indian software
industries exports amounted to close to $10 billion dollars in
200370 percent of these earnings coming from the US. The US consulting
firm Gartner has estimated that around 500,000 of 10.3 million US technology
jobs will move offshore in 2003 and 2004.
estimates that $356 billion worth of financial services will be offshored
within the next five years, with savings of $139 billion dollars. This
is estimated to result in a loss of around 2 million jobs. NASSCOM estimates
cost savings to US corporations from offshoring to India will be more
than $10 billion.
Loss of high paying
jobs across the US is now an indisputable fact, with many workers facing
a bleak future. Workers in both the manufacturing and technology sectors
previously earning relatively high wages are now unable to find jobs.
against offshoring and other protectionist demagogy by politicians and
union bureaucrats will do nothing to halt this process. No solution
is possible outside of a political struggle waged by the working class
against the profit system as a whole.
Workers around the
world must counterpose their own perspective for the development of
the productive forces, in a rational and socially progressive way, to
the rapacious strivings of the financial elite for their own further
enrichment. In the end, only the democratic control and ownership of
production by the working class of all nations can utilise the wealth
from this immense global productivity of human labor to benefit all.