Outsourcing, in all its forms (business-process, legal-process, knowledge-process, IT-enabled services) generates economic euphoria in India since it taps India’s skills and English knowledge-base. Before outsourcing, India’s labour cost advantage manifested itself through cross-border movements of labour, reflected in negotiations over H1B (and L1) visas and their caps. This is skilled and temporary migration, unlike unskilled and permanent emigration witnessed earlier. Outsourcing and cross-border labour movements aren’t substitutes, since the same sector isn’t usually involved. But to the extent there is a trade-off, India ought to prefer outsourcing. Positive externalities and multiplier benefits then accrue to India, unlike emigration, where a developing country subsidises developed countries like the US. In cases of outsourcing, taxes are paid in India and incomes also translate into consumption expenditure within the country, not to speak of intangible learning-by-doing and productivity gains. Add to that, India’s skill shortages, in the absence of supply-side adjustments. Wage inflation in selected segments and potential threats from other countries are sometimes mentioned as eroding India’s labour cost advantage. But India will retain some advantage thanks to purchasing power parity differences.US opposition to H1B visas, because of assumed job losses, isn’t new. There have been allegations that L1 visas are misused. Unreasonable conditions are imposed on H1B visa applicants and their salary packages. While US annual multilateral commitment is still 65,000 H1B visas, de facto numbers have been more because US industry has lobbied to ensure it doesn’t lose competitive advantage with lower caps. The new round of electoral issues in the US now brings in outsourcing, though this figured peripherally in the last presidential elections too. In addition to job losses, the new argument is that US loses its technological advantage thanks to outsourcing. This isn’t convincing because, first, the US remains the world technology leader by miles, with the best higher education system. Second, if it has a problem it is that its primary and secondary education quality is poor — and US technology companies have complained about this. But still, it is important to recognise that America losing blue-collar jobs in manufacturing to East Asia is different from loss of white-collar jobs in the services sector. The hate India websites and blogs are evidence enough. However, the corporate sector will resist intervention in commercial decision-making. Plus, there is also strong pressure to legitimise H1B aspirations of post-graduate Indian students in the US.
