Monday, August 16, 2010

Chop Shop Statement in perspective

Democrat Senator Schumer from New York during a discussion on a border security bill recently stated:

“The emergency border funds will be paid for by assessing fees on foreign companies known as chop shops that outsource good, high-paying American technology jobs to lower wage, temporary immigrant workers from other countries. These are companies such as Infosys”.

This has created a lot of indignation in India with criticism coming from across the corporate and political spectrum. While the statement itself is in poor light, our reaction should be seen in perspective. President Obama, a democrat won the US elections in November 2008, on the back of a rejection of the economic policies of George Bush. One very important issue in that election was unemployment. Unemployment stood at 5% in April 2008 but had risen dramatically touching 7.5% in October 2008 just at the time of the elections. It further reached 9.5% in April 2009.

Since April 2009 the unemployment rate has remained in a narrow band of 9.5-10% and it is forecast to be around 9.9% in Feb 2011. With elections around the corner in November 2010 there may be many more statements addressed to the American public by its politicians. Politicians will be politicians no matter which country they reside in, and they need to get re-elected, so we should not really get too worked up. This reminds me of some lines from Kahlil Gibran

“The reality of the other person lies not in what he reveals to you, but what he cannot reveal to you. Therefore, if you would understand him, listen not to what he says, but rather to what he does not say.”

In fact we should highlight the positive effects commerce with India has brought to the US, something we are really not doing effectively. One prime example is investment by Indian companies in America.

A report released by Congressman Jim McDermott “How America Benefits from Economic Engagement with India” stresses on theses investment in the US. It is a very interesting study as it highlights that between the years 2004-2009, 90 Indian companies made more than 100 Greenfield investments valued at $ 5.5 Billion creating 16,576 jobs. Further the report highlights that the total investment by Indian companies to the US in that same period was to the tune of $ 26.5 Billion which resulted in job creation to the tune of 60,000.

Indian companies and especially the IT companies employ tens of thousands of people in the US and probably pay taxes in the billions. These very same companies have been busy at campus recruitments where thousands of people have been hired. So the statements that high paying American jobs are lost are not entirely correct.

Further while there is indeed a huge unemployed labour pool there is also a shortage of skills within organizations especially in IT, Communications and healthcare. So the need for skilled people will always be there. In that light we should also not look at the raising of H1B fees very narrowly as if it will sink the Indian IT / ITES Industry. NASSCOM estimates that the value of India IT/ITES exports would be around $ 60-62 Billion in FY 2010-2011. If we assume that 60% exports go to the US, we are talking of approximately $ 36 Billion. Now at the other end look at the H1B regime. The total number of H1B’s issued in a year is 65,000 of which traditionally 60% go to Indians. That’s about 39,000. So with increase of visa fees by $ 2000 the net increase in payouts for the whole industry would at best be $ 78 million. Against an export of $ 36 Billion, well......

1 comment:

Anonymous said...

I find this quote from Johann Wolfgang von Goethe explains it all....“We do not have to visit a madhouse to find disordered minds; our planet is the mental institution of the universe.”