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Welcome Obama! India Inc is here to help

India's outsourcing companies along with President Barack Obama, who arrives in Mumbai on Saturday, are at pains to reassure the American public that India is here to help the US.

business Updated: Nov 04, 2010 12:27 IST

India's outsourcing companies, often blamed for stealing Main Street jobs, want Americans to know: We're hiring in the US.

They along with President Barack Obama, who arrives in Mumbai on Saturday, are at pains to reassure the American public that India is here to help the US.

On paper, the relationship looks great: Two big markets, two democracies, growing trade. In practice, there's a creeping sense that it may not live up to the hype. India, emboldened by its growing economic importance, is not playing by US rules. And the US, which has lashed out at India's key outsourcing industry even as it funnels billions to its ally in the war on terror — India's archrival Pakistan — looks like less of a friend than New Delhi might like.

Many believe business can lead bilateral ties. Obama, weakened by Republican gains in Congressional midterm elections, is bringing 250 US executives including GE chief Jeffrey Immelt and Honeywell's David Cote, which the US India Business Council says is the largest such delegation to ever accompany a president on a foreign visit. The presidents of six universities, including Georgetown and Duke, are also set to come.

Together, they are seeking more than $10 billion in deals.

Bilateral trade, on track to hit $50 billion this fiscal year ending March, has more than doubled since 2004. Last fiscal year, India's $11 billion worth of investments in the US matched US investments in India for the first time ever, according to the US India Business Council.

But sentiment has frayed since the two countries signed a civil nuclear cooperation agreement in 2008. Then-President George W Bush pushed through that deal, which allowed nuclear trade with India despite its weapons program and seemed to herald a new era of cross-continential commerce.

It hasn't been that simple.

The job creating power of India's big, fast-growing market is hampered by its restrictions on foreign access to key sectors like retail, finance, education and insurance. Multinationals are wary of the shape-shifting rules that seem to govern things like taxes and environmental permits in India. And the large defense contracts that headline the wish list of deals for Obama's visit come burdened with offsets and foreign investment caps.

The Americans who accepted outsourcing of IT and back office functions in boom times as a way to free up capital for job creation at home seem less certain of the strategy's benefits during a bust.

With US unemployment at 9.6%, India's putative role as a driver of job insecurity has leaked into campaign rhetoric — Barbara Boxer's attacks on Carly Fiorina for sending Hewlett-Packard jobs to India and China helped her win the California Senate race — and popular culture alike. NBC's new sitcom, Outsourced, tells the story of a Kansas City company that sends most of its jobs to India.

Indian companies keep insisting, quietly, that they're not really the problem: If you don't like jobs getting sent overseas, better to direct your anger at major US corporations whose race for low cost competitiveness drives India's $50 billion software services sector.

"We strongly believe the global delivery model is beneficial to customers," said Infosys chief executive S. Gopalakrishnan. "It increases their competitiveness. It reduces costs. It gives them access to a scalable high quality talent pool and to emerging markets. That's why it's growing."

The US Congress seemed to disagree, hiking visa fees for Indian outsourcing companies by about $2000 per worker in August, provoking howls of discontent here.

"It's tens of millions of dollars," said Tata Consultancy Services chief executive N Chandrasekaran.

The law pinches Indian outsourcers where it hurts, at the heart of the industry's hopes for future growth in its most important global market.

The companies have been trying to diversify into health care and government work and move up the delivery chain to higher value areas like consulting. All require workers, with visas or US passports, in the United States.

Many here fear the backlash will get worse by the 2012 elections, barring a turnaround in the US labor market.

Indian outsourcers — and their clients in corporate America — are happy to move jobs to the US as long as it doesn't disrupt their low-cost business model.

That translates into very few jobs.

Lobby group Nasscom says India's software services exporters have created 35,000 high-paying US jobs in the last five years.

Industry leader Tata Consultancy Services is looking to hire 1,000 Americans this fiscal year. Less than 1% of its global work force are American, according to company data.

Infosys is also looking to hire 1,000 Americans. Its 1,600 permanent US employees — not counting an additional 600 or so who work for two US subsidiaries — make up 1.3% of the company's global work force.

"We can't replace all the people from here with people from the United States and have the same value proposition," said Chandrasekaran.

From the US side, perhaps most disillusioning is a law passed by India's parliament that extends liability to the suppliers of nuclear plants, making it difficult for private companies to compete against their state owned French and Russian peers in India's multibillion dollar nuclear reactor build-out.

"There has been a reality check," said Stephen Cohen, a South Asia security expert at the Brookings Institution.

Backers of the civil nuclear deal in Washington, he said, "made believe India was a true ally and would never let us down."

US India Business Council president Ron Somers said India's signing last week of an International Atomic Energy Agency convention on liability is a step forward and will require Indian laws to conform to international norms, which do not make private companies liable unless there is malfeasance.

Even India's purchase of 10 Boeing C-17 transport aircraft, expected to be finalized during Obama's visit, will probably be worth less than the anticipated $5.8 billion because of fewer add-ons, said Guy Anderson, lead analyst at Jane's Defence Industry.

India is second only to China in ramping up military procurement, making it an attractive market for US defense companies. But the bureaucracy is so inefficient the government doesn't manage to spend the money earmarked for military procurement each year, and Russia still dominates sales in a country where some, especially in the older generation, continue to regard US intentions with skepticism.

Somers says naysayers are too impatient and points out that from 2007 to 2009, the US sold India $4.3 billion worth of defense equipment — a huge jump from the $342 million sold from 2001 to 2006.

"We've come a long way," he said.