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BPO: IMF says India-bashing unjustified

December 03, 2004 10:56 IST
Last Updated: December 03, 2004 11:12 IST

India-bashing on outsourcing of jobs from America is totally unjustified, in fact the US and Britain have the largest net surpluses in business services and hence would suffer the most in terms of the foregone dollar value of such trade if other countries cut service outsourcing, an IMF study has said.

Mary Amiti, an economist, and Shang-Jin Wei, head of the trade unit in the IMF's research department, in an article in Finance & Development, an IMF publication, said that between January and May 2004, there were 2,634 reports in US media on service outsourcing, mostly focusing on the fear of job losses. Call centres and computing services in India were the most frequently reported examples.

Outsourcing and India: Complete Coverage

"Firms based in industrial countries that outsource services have been accused of exporting jobs to developing countries.

"But in reality, the growing outsourcing of services is simply a reflection of the benefits from the greater division of labour and trade that have been described for manufactured goods since the time of Adam Smith and David Ricardo," Amiti and Wei said after doing research on the issue of India bashing and others on the outsourcing.

Furthermore, there has been a push in some industrial countries, for example in the United States and Australia, to introduce legislation that would limit the outsourcing activities of firms with government contracts.

Analysing pros and cons, the authors say: "On the whole, welfare should improve as a result of outsourcing but in the process some groups or individuals could be made worse off.

"But in the aggregate, outsourcing does not appear to be leading to net job losses. Jobs lost in one industry often are offset by jobs created in other growing industries."

US business service imports as a share of GDP have almost doubled in each of the past several decades, from 0.1 per cent in 1983 to 0.2 per cent in 1993 and 0.4 per cent in 2003.

India, reported to be the recipient of major outsourcing, itself outsources a large amount of services. Its business services grew from 0.5 per cent of GDP in 1983 to 2.5 per cent of GDP in 2003.

Like trade in goods, trade in services is a two-way street. In addition to being a large importer of services, the US is also a large exporter of services and it has a net surplus in all services, in contrast to its goods trade, in which it has a net deficit. Hence it would suffer the most in terms of the foregone dollar value of such trade if other countries cut service outsourcing.

"Our results from the US and UK studies suggest that service outsourcing not only would not induce a fall in aggregate employment but also has the potential to make firms and sectors sufficiently more efficient, leading to enough job creation in the same broadly defined sectors to offset the lost jobs due to outsourcing," they said.

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