Q:   Do you think President Obama’s move to tax offshore outsourcing on the part of US firms desirable in the present-day globalised economy? What is your take on this policy?

Ans:   Global business operates in a highly competitive environment today. In the globalised economy, cost-effectiveness rules the roost. Taxation (as a barrier) cannot and has not helped business. India went through an era of high taxes and levies until the early 1990’s. During this time, taxes and levies exceeded 100 per cent at times in certain spheres. A 300 per cent levy was also witnessed! Did it help the Indian economy? It did not! Even today, Chinese goods arrive in the Indian market, duty is slapped on them, but still they sell, because the duties are inadequate to cover the efficient manufacturing processes that still give those goods a cost advantage. This is ‘business reality’ that every country has to learn to live with. The same will hold true for the outsourcing business. A small tax will still keep goods and services competitive. And a high tariff barrier will not and cannot work for long.

Q:   In the light of the extant treaties and agreements, do you think the President will be in a position to enforce this policy, even if he wants to?

Ans:   These days there are agreements, treaties, etc, bilateral and multilateral in nature. Their provisions do not allow creation of high barriers of the tariff or non-tariff kind. Even if barriers are sought to be erected in a diluted form, they are subjected to a good number of riders, in the interest of the welfare of all the parties concerned.

Q:   It is alleged in some quarters that President Obama’s speeches place more emphasis on investment in education, infrastructure and healthcare and make just a passing reference to tax penalty on offshore outsourcing. If true, what could be the reason for this?

Ans:   President Obama made a brief mention in a long speech regarding withdrawal of tax sops to US firms which send jobs out of US. But, he talked a lot about boosting the sagging economy of his country by investing in education, infrastructure, healthcare, etc. Clearly these will create more job opportunities. Investments in education will help the US in enhancing the competitiveness of its white-collar workers. It is unlikely that the President will act in a manner that comes in the way of achieving competitiveness. It is not only the service sector that witnesses outsourcing. Even the manufacturing sector witnesses outsourcing. What matters ultimately is addition to the value chain. If outsourcing can help in adding value, businesses will have to go for it. If they do not, they will lose out to their competitors.

Q:   Can you cite an example nearer home in support of your answer?

Ans:   For example, TCS and Infosys, the Indian IT giants, are amongst the top exporters in their field. But when it comes to the Indian domestic market, the leader is not an Indian company but a US company, viz, IBM! Why? Because IBM is able to achieve maximum value addition in India! Ultimately, everything boils down to a question of business reality and political reality!