US onshoring deal worries: What is the impact on Indian IT?

There is a possibility that the new US government deals could carry a clause of a mandatory onshoring. It means that one cannot offshore it back to India.

In an interview to CNBC-TV18, Ganesh Natrajan, vice chairman and managing director of Zensar Technologies says, the impact on the Indian IT sector, atleast on Indian listed companies, is marginal. "We do about USD 5-6 million of work for the government. That's entirely onsite because it's more of support and infrastructure support. I do not think the entire Indian IT sector, the listed Indian companies, are at all dependent on the government for business. So, I won't worry about that," he explains.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: Do you see the likelihood of the US government introducing such mandatory clauses of onshoring? What is the kind of impact on Indian IT?

A: First of all, you got to segregate federal government and local government. There have been instances in the past where local government has talked about doing only things onsite. It's not improbable that something like that happen, especially in an election year.

The impact on the Indian IT sector, atleast on Indian listed companies, is marginal. You take a company like ours, we do about USD 5-6 million of work for the government. That's entirely onsite because it's more of support and infrastructure support. I do not think the entire Indian IT sector, the listed Indian companies, are at all dependent on the government for business. So, I won't worry about that.

It does impact large corporations like IBM or HP or Computer Sciences Corporation. They do a lot of work with the government. If they are doing part of their work in their India centers then that might have some impact. So, net-net, we need to watch out in terms of its impact on employment in this country, but on the Indian IT listed stocks, very little impact.

Q: Is there any chance at all that election year fever can take it to even the private sector, some kind of tax incentives offered for bringing jobs back. Would that hurt? Can that happen?

A: This is all perception. We have seen it in every election year, in the last two election years, we have seen somebody or the other raising this whole boogie of outsourcing and off shoring. So, I am sure we can expect to see something like that happen. There is already 'Bring Jobs to America' bill is being talked about.

My view is that so long as it's positive, which means create jobs in America, we should completely support it. My own company has today over 400 US citizens as employees as compared to less than 50, maybe two years ago. I think it's important. We are earnings money in that country we will generate jobs.

Is it feasible that there will be some kind of an outcry against moving jobs offshore? Sure there will be. But does that mean that it can translate into offshore jobs being moved back to the US? That is very unlikely. First of all, such legislation takes forever to pass. There are huge lobby against it.

Second, even if there is a need to do that, measuring that, getting the private sector to play ball is going to be very difficult. I think the positive signs are all there that we will look at job creation. I do not see any negatives at this point of time.

Q: Would American private sector business take it, if they were in some form, directly or indirectly arm twisted into bringing jobs or keeping the jobs in the US?

 A: I think it is pure economics. If you are CEO and somebody tells you that I will give you 20% tax break, you are going to weigh that against 500 person captive global center in India or maybe working with third party like Zensar or TCS or whoever, you will say what is the benefit I am getting in terms of value, in terms of cost. I would argue that value benefit will be atleast 40%. So, even a 20% tax break may not be a financial incentive to bring jobs back.

I think what we need to worry about is these noises do create delays in decision making, people say let me wait for the election year to pass and let me see what happens. So, those are the concerns. But these are all minor concerns. I do not think there is anything that needs to keep us awake at night, as far as this year's financial numbers are concerned.