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Indian IT gears up for US backlash

December 19, 2007 12:44 IST

Leading Indian information technology companies are bracing themselves for a US backlash against the industry in the run-up to the 2008 presidential elections.

"It will be a potent combination of a weak economy and an election year," warned Nandan Nilekani, co-chairman of Bangalore-based Infosys Technologies. "Concern about [the transfer of US] jobs could rise and we are preparing for that."

In the 2004 race, companies outsourcing to India found themselves targeted by talk show hosts, with John Kerry, the Democratic Party candidate, even dubbing their chief executives 'Benedict Arnolds' - a reference to a treacherous 18th-century general.

Ron Somers, president of the US-India Business Council, an advocacy organisation representing top US companies investing in India, said he was worried that "a backlash against global sourcing could rise up yet again".

"We certainly expect the same rhetoric to be there, particularly with the slowdown, as there are real issues about job losses to be addressed," said Pramod Bhasin, chief executive of Genpact, a leading business process outsourcing firm based in Gurgaon, India.

"But at the same time, I'm not sure the rhetoric will have a great deal of impact. Demand is so strong that the rhetoric is unlikely to stop companies doing what they need to do, especially in a slowdown. We have just raised our full year guidance."

Kiran Karnik, president of Nasscom, the IT industry lobby group, said in an interview that he was encouraged to see outsourcing now being discussed in a "rational rather than emotional way" in the US.

"Crucially, the climate in which outsourcing is being discussed is not as adverse as in 2004 in terms of job losses," Mr Karnik said. "There's also more of a recognition now that India is a large market for US companies in part because of IT prosperity."

Hillary Clinton, the Democratic Party's frontrunner, has urged Indian companies to create more jobs in the US to forestall popular demands for legislative curbs on outsourcing and the migration of jobs to the subcontinent.

Mr Somers claimed that India's rise was "creating literally thousands of high-paying American jobs", citing $20bn of aircraft orders booked by Boeing (NYSE:BA) over the past two years as one example of a burgeoning two-way economic relationship.

Experts say that although there has been a shift to the left in the terms of the US debate on trade, the health of the US IT sector, currently enjoying near full employment, will make it an unlikely point of focus during the campaign.

"I don't think outsourcing will take on as prominent a role as in 2004," says Jacob Funk Kirkegaard, an economist at the Peter G. Peterson Institute For International Economics in Washington and author of a new book on high-skilled immigration.

In 2004, he noted, unemployment for US computer programmers and software engineers was unusually high, at 5-5.5 per cent, a new experience for these types of workers. By last quarter, however, it had fallen to around 2 per cent.

"The US industry hasn't been doing badly at all since 2004," Mr Kirkegaard said. "I don't think it will be possible to use as a linchpin in the globalisation debate a group enjoying full employment. There are more credible losers from globalisation."

Indian IT firms, already facing pressure on their margins from a rise in the value of the rupee, are watching for signs of a possible downturn in orders from financial sector clients hit by the credit crunch.

Azim Premji, chairman of Wipro, a Bangalore-based IT group, told the Financial Times the US slowdown had yet to affect his business, of which just over 40 per cent comes from the US and around a quarter from banking and financial services customers.

"We've so far had no slowdown in financial services," he said. "There's been some downsizing of banks, but it's not hurt us so farÂ…. It is not something that is significantly worrying us at this time."

Indian IT stocks have fallen sharply this year, underperforming a surging market. Wipro is down 20 per cent since January 1, while Infosys, dependent on the US for 63 per cent of its $3.1bn sales last year, is down 31 per cent.

Kris Gopalakrishnan, chief executive of Infosys, said his company had also "not been affected" by the US slowdown, suggesting that although the global delivery model of leading Indian IT firms may not be fully recession-proof, it is bearing up well.

"Companies are not going to cut the offshore element in their budgets first, they are going to cut it last," Mr Gopalakrishnan said. "The last time we had a recession, in 2001, we saw growth rates maintained at 30 per cent."

Jo Johnson in New Delhi