How India can retaliate–and why it must not

Here’s the picture. Of India’s $ 34 billion ICT industry,
38 percent is exports, mostly tech services; 18 percent is the domestic IT
market and the rest is the telecom market.

Against India’s services, exports of $ 8 billion to the
USA, we import over $ 5 billion worth of products from there, including telecom.
That’s tech only. No GM or Ford products included, nor Boeing, nor consumer
electronics, defense...

Now, Uncle Sam wants to ban offshoring to India.

It’s taken the first election-year step with US government
contracts. That’s under 2 percent of the business, though it was to go up.

But there could be other follow-up. Such as preferentially
awarding contracts to US companies that do not offshore.

What an anachronism, in a global economy! Could Uncle Sam
today exclude products made outside the US, or those made by US companies that
offshore? That would knock off 90 percent of US companies, not to mention the
backlash from China, Japan and other big American markets.

Okay, let’s not try to understand election-year stupidity.
We have enough of it happening in India itself, from staggering subsidies and
freebies to sponsored xenophobia.

But a country setting up trade barriers today hurts itself
more than any other. An answer to the offshoring ‘problem’ could have been
to allow in more tech workers to the US. Instead, it dropped H1B visa numbers by
two-thirds, down to 65,000 for its current fiscal ending September 2004. That
quota’s over in February itself, causing more pressure to offshore. Next silly
step–choke the L1 visa? Will US companies then hire only local manpower? Will
US consumers pay double for products and services? No, more likely, the US
company will cut costs by laying off people.

Retaliation is not difficult. First step: the Indian
government decides to ‘prefer’ non-US vendors. Motorola, Lucent, Cisco, IBM,
HP, et al find themselves out in the cold on government contracts. Not to
mention Boeing, Raytheon, et al. Then another swadeshi wave targeting Coke,
Pepsi, McDonald’s…?

But this is the modern economic equivalent of the cold-war
doctrine of nuclear deterrence by ‘mutually assured destruction’–MAD.

We may not even need the logic of our tech industry: $ 8
billion of services exports to India means $ 10 billion in savings to the US
economy; all those H1B and L1 visa holders pay US taxes and fund the US social
security system; etc. Saner voices in the US have already come out against the
rising hysteria and in strong support of free trade: Alan Greenspan, Bill
Clinton, Bill Gates...

Protectionism is not a sustainable doctrine in today’s
global economy. It does not work. Sooner or later, economics, if not better
sense, prevails.