US president Barack Obama, in his State of Union address yesterday, reiterated a campaign pledge to end tax breaks for US companies that outsource jobs overseas.
He said, to encourage businesses stay within US borders, it was time to finally slash the tax breaks for companies that shipped jobs overseas and instead give those tax breaks to companies that created jobs in the US.
According to a Tholons report, India ranks among the top five outsourcing destinations along with the Philippines, Ireland, China and Brazil. India earned revenues of $40 billion from IT-BPO export services in 2008, out of which the US accounted for around 50-60 per cent.
Following Obama's address, shares of some leading IT exporters fell sharply with Tata Consultancy Services down 3.3 per cent at Rs715, Infosys down 2.7 per cent at Rs2,425 and Wipro falling 4.9 per cent at Rs640.
According to analysts, though the move would likely impact India's IT sector, as India is known to be the world's back-office, though the overall impact on the economy may not be significant given the fact that the IT sector accounted for only around 5.8 per cent of India's gross domestic product in 2008-09, up from 1.2 per cent in 1997-98.
They also point out that, though, the move is aimed at arresting the flow of jobs out of the US, industry sources in the US are not quite sure about its exact impact.