Impact of Obama’s Plan on the Indian Outsourcing Industry

clip_image002 The US President Obama’s proposal to tax expenditure by the US companies on availing services from outside the country from 2011 has received mixed reactions from all over the world.

Most of the industry leaders in India believe that the plan is aimed at curbing the country’s outsourcing industry. At the same time, the proposed tax system is also winning few fans in India.

The Scenario

  • India’s information technology and outsourcing companies employ about 2.2 million people, and the US companies account for about 60 % of their business.
  • The US companies either have their own subsidiaries in India or employ Indians by contracting work to local technology and outsourcing companies.
  • Many of these Indian operations handle customer service and back-office functions, particularly for the US banks and credit card companies.
  • Recently, many US corporations have also expanded their sales, marketing and distribution in India.

The Proposal

  • Elimination of a deduction for the US companies when they invest in subsidiaries outside the United States.
  • To tax expenditure by the US companies on availing services from outside the country from 2011.

The Reaction

Let us try to see what various people are saying before forming our own opinion:

NASSCOM (India’s leading outsourcing lobby):

  • The tax plan may actually end up reducing competitiveness of US companies with global operations when compared to their European and Japanese counterparts.
  • The proposals appeared to be aimed at addressing the tax rate differentials that exist across the world. It will impact American headquartered companies with overseas operations

CII (The Confederation of Indian Industry)

  • It’s an internal issue. It will only reduce their competitiveness. He added, “It is a populist posture. Perhaps his (Obama’s) intention was not the same. However, it sends a wrong message.

Infosys (India’s second largest software and outsourcing company)

  • It is not for us. It is for US companies that have operations in other destinations. It will not have an impact on Indian companies.
  • We do not believe that it has anything to do with IT outsourcing done by US corporations.


  • It is irrelevant as far as Indian IT providers are concerned. It may encourage more US companies to invest and create jobs within that country

FCCI (Federation of Indian Chambers of Commerce and Industry)

  • While Obama’s move would have some impact on the US investment abroad and into India, in the long run this would only run counter to the interest of US corporations seeking global presence.

The Opinion

It was the availability of young talent pool, the time zone factor and the cost advantage that made outsourcing in India flourish in the last decade. It was not due to any tax benefit that the US firms enjoyed.

US companies save 60-75% by outsourcing their back office operations to countries like India. The overall impact would be clearer once the exact structure of the taxation is announced. Nobody really knows what will happen in the longer run but the move has definitely diluted the spirit of the global economy and the flat world.

(Sources: New York Times, indiatimes)

(Image credits: indiatimes)


Tripp Babbitt May 10, 2009

I believe the Obama administration has the right path, but wrong reasons. It is actually a cost advantage for US companies to keep outsourced call centers, technology, etc. in the US. They either are outsourcing waste (see or not realizing that software development needs to have contact with the work (

Wasting US dollars on such foolishness is not “unamerican”, it doesn’t play to the bottom line . . . profit.

Nishant.Soni May 11, 2009

I’ve been working in BPOs since past 5 years on different posts. Been to US and AUS twice for couple of months. 5 years is a very long time for BPO industry. According to my experience, even if they think to move the jobs back from india to US or to forward it to CHINA it will take a long time to move the entire setup. And china could be a big problem since indians have a neutral accent and just needs to be polished so americans can understand. but chinese people have a real light accent. So its real hard to understand them.
And its almost point less to move the jobs back to US since most of the compnies are already facing some financial crisis. But yea, what they might just do is to replace the big heads, the indian big bosses with american. I still see most of the BPOs in mumbai have a large opening. So i really dont see anything like recession for BPO industry.