Mongering... Fear and Otherwise

Filed in archive Outsourcing Pros and Cons on August 29, 2008

The Indian blogosphere has been up in arms since Barack Obama's speech last night - particularly the part that said that he would eliminate tax breaks for companies that offshore, while granting tax breaks to those who keep jobs in the U.S.

Some have been quoted saying that "this would do more harm to America than good." Others Fear that this will begin a pull-back away from Indian service companies. But, at the end of the day, all it will really do is raise the cost of doing business in India and lower the cost of doing business domestically.

Without regard to whether I think it is good or poor policy, many governments have, over time, created incentives to create jobs within their borders. Sometimes this comes from tax breaks and other public subsidies, other times the underlying means is less transparent. However, India (and every other government) has, on a regular basis, established incentives to promote job growth within their borders.

Viewed through this lens, the policy seems far more reasonable - using tax policy to incentivize desired behavior. Certainly, India could create additional incentives to offset some of these costs, rebalancing the equation.

What ever the spin and whatever your perspective, the position offered by Mr. Obama will not eliminate offshoring, but instead may alter the equation a bit. I seriously doubt that it will reach the tipping point, however.