Obama Cracks Down on Outsourcing, FICCI Worried

by CXOtoday Staff    Feb 26, 2009

Reacting to the statement made by US President Barack Obama that "We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." FICCI said that it was deeply concerned by this statement.

Coming at a time when the global economy is going through a phase of slowdown and when countries need to work collectively, protectionist measures of any kind could deteriorate the situation further. 

Citing a study by the US Chamber of Commerce (Washington D.C.), FICCI said that it is US companies that gain maximum from outsourcing. In fact a McKinsey analysis shows that every dollar of costs the United States moves offshore brings America a net benefit of  $ 1.12 to $ 1.14. The same study also highlighted that worldwide sourcing will produce net benefits to Americans in terms of higher productivity, lower prices, better jobs, new export markets, and stronger companies.

FICCI noted that the decision to outsource is purely economic and that US companies will have to do their own cost benefit analysis before arriving at any results. We see a case of a clear trade off between greater efficiency and global competitiveness on one side, and immediate revenue gains in the near term from tax rebates and tax breaks, said FICCI.

On the likely impact on the Indian companies, FICCI said that we would have to wait and see how the rules are framed and implemented. If significant tax incentives were taken away from US companies that outsource work to more cost effective locations, then Indian service providers would certainly feel the impact, as lesser work would be contracted out.

 FICCI is hopeful that the US administration would take account of both the pros and cons of any measure that it may choose and that the decisions reached would be in the long-term interest of the US economy, its corporations and global economy.

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