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US Immigration Bill: Indian IT Cos’ Loss is Tech MNCs’ Gain
American technology service providers such as Accenture, IBM and Hewlett Packard
stand to gain billions of dollars in revenue at the expense of their Indian rivals if the US
Immigration Bill passed by the Senate last week becomes a law.
US-based multinational firms would have a better shot at large outsourcing contracts
coming up for renewal because the proposed visa reforms have provisions that make it
more difficult and expensive for large Indian software exporters such as TCS, Infosys,
Wipro and HCL Technologies to remain competitive in a crowded market.
The most onerous provision impacting their ability to win projects is one that restricts
companies with over 15% US staff on visas from placing their employees at client
locations, said experts. Indian IT providers see the legislation as biased and favouring
US rivals, which have expanded aggressively in India but continue to have large
workforce in the US, making them relatively immune to the harsh provisions in the
proposed visa reforms.
“We do not believe multinational providers such as Accenture or IBM will experience
adverse impact. In fact, they may receive some competitive advantage,” said Peter
Bendor-Samuel, chief executive officer at outsourcing advisory Everest Group. The
proposed legislation also comes at a particularly crucial time when several multi-million
dollar deals are coming up for renewal and Bendor-Samuel said there could be some
shift in share from providers such as Infosys and Cognizant to those like IBM and
Accenture, at least in the short term. The opportunity in the renewal market is nearly
$60 billion-70 billion (Rs 3.6 lakh crore- 4.2 lakh crore), according to the Information
Services Group, which advises on most large global deals and also tracks the renewal
market. “The MNCs have more local delivery resources and models,” said Siddharth A
Pai, partner and president ISG Asia-Pacific.
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Gas in Its Tank, Govt. Set to Step up Speed of Reforms
The government is lining up a spate of decisions as part of a campaign of reformsaimed at lifting the economy out of its worst slump in a decade. The thrust of thereforms is two-fold: increase inflows to cut the current account deficit that hastriggered an alarming depreciation of the Indian currency, and break the logjamholding up investments in infrastructure.Top officials will meet on Monday to firm up a plan, initiated by the finance ministry,to bring about major relaxations in the foreign direct investment (FDI) limit in manysectors.Further, the finance ministry will draw up an action plan to boost financial marketsbased on a closed-door interaction between Finance Minister P Chidambaram andinvestment bankers and economists.This includes launching financial instruments intended to encourage foreignsovereign wealth funds to invest longterm money in India.The decisions that are in the works include executive actions as well as legislation.In the coming weeks, the government will step up the pace of allocation of naturalgas to fuel-starved plants, reallocate and auction coal blocks whose allocations havebeen cancelled, and implement the fertiliser policy. Booster Dose for ManufacturingSector on CardsA proposal to set up an independent tariff authority for the railways is ready, as isthe plan for a regulator for roads. The government is also exploring if it can reach outto JD(U), which recently walked out of BJP-led NDA, DMK and BJP itself to get someof the financial sector reforms passed.Economists say reforms can help attract flows in the country. “Specific reformmeasures can help dispel the notion that nothing works in India and make asignificant impact in the long term,” said Abheek Barua, chief economist, HDFCBank.The commerce and industry ministry is also discussing measures to boostmanufacturing, which is increasingly being seen as the key to India stepping up tohigher growth rates.
Last week, the government announced a steep increase in the price of natural gasand approved setting up a coal regulator, both aimed at encouraging higherproduction of domestic fuel.Greater fuel production will help reduce imports and thereby lower the currentaccount deficit that came in at an all-time high 4.8% of GDP for 2012-13.There will be follow-up action on gas allocation after the recent price increase toensure that the fuel flows to crucial sectors while the impact of the higher prices ischecked.But while the government finds long-term solutions, which include encouragingpeople to save more in financial assets and less in gold, the finance ministry is keento ensure that foreign inflows continue.India’s near-$260 billion of reserves are barely enough to cover six months ofimports, down from nearly 15 months in 2008.The finance ministry is driving a massive reform of the FDI regime that could see anincrease in foreign investment limits for defence and multi-brand retail, the so-calledsensitive sectors. Based on the recommendations of a committee headed by ArvindMayaram, secretary in the department of economic affairs, top bureaucrats willpresent a FDI reforms agenda that the FM has said will be taken up in the third weekof July. The FM also met economists and market participants last week to seekfeedback on investments and ways to stoke growth, which slumped to a decade-low5% in 2012-13.
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