In a move that could shake the foundations of India’s IT services industry, US President Barack Obama today said he will end tax breaks to American firms that ship out jobs abroad.
“To encourage… Businesses to stay within our borders, it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America,” he said in his first State of Union address.
A report by IT consultancy firm Forrester Research estimates that 3.3 million American jobs will be lost to outsourcing in 15 years ending 2015. Already, half of the Indian IT-BPO industry’s USD 71.7 billion revenue comes from the US.
According to Gartner, Indian BPO vendors will command 10 per cent of the total global market share by this year end.
Obama said: “Now, the House has passed a jobs bill that includes some of these steps (to slash tax breaks). As the first order of business this year, I urge the Senate to do the same… People are out of work. They’re hurting. They need our help. And I want a jobs bill on my desk without delay.”
American companies primarily move jobs abroad to save costs, with no dent to services as countries like India boast of an English-educated workforce — be it IT engineers or for jobs that have to be done over phone.
“I think the concerns we have is about indirect protectionism. I don’t think tax break issue is… Important for us,” Indian software services industry body NASSCOM Vice-President Ameet Nivsarker said.
“Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed,” Obama said.
He said job creation would be be the country’s number-one focus in 2010, and pushed for the new jobs bill.
The bill will provide for taking USD 30 billion of the money Wall Street banks repay and use it to help community banks give small businesses the credit they need.
“Now, the true engine of job creation in this country will always be America’s businesses. But government can create the conditions necessary for businesses to expand and hire more workers,” he said.
“The whole issue about taxing companies, which were shipping jobs overseas and taking away tax breaks actually does not relate to the work that is done out of India or other locations. That is really about US subsidiaries which have set up plants overseas,” NASSCOM’s Nivsarker said, adding that it will affect American companies more than Indian IT services industry.
Obama also announced that US would invest massively in skills and education of its people.
“Still, in this economy, a high school diploma no longer guarantees a good job…To make college more affordable, this bill will finally end the unwarranted taxpayer-subsidies that go to banks for student loans,” he said.
“Because in the United States of America, no one should go broke because they chose to go to college.