Will Obama's anti-outsourcing tirade impact Indian IT?

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Does President Obama's State of the Union commitment to end tax breaks for companies that ship US jobs overseas represent a serious threat to India's IT and BPO industry?

Even if that is not the case, is this an indication of the new American protectionism that should concern us? The Principal Analyst of Forrester, Sudin Apte; Former CEO of Mphasis , Jerry Rao; the CEO of Quatrro, Raman Roy and the President of NASSCOM, Som Mittal, discussed those CNBC-TV18's Karan Thapar on India Tonight.

Below is the edited transcript of the interview. Also watch the video.

Q: In the state of the Union address that he delivered the other day, President Obama promised to slash tax breaks for companies that ship our jobs overseas and to give those tax breaks to companies that create jobs in the United States (US). Is this a threat veiled or otherwise to India's IT and BPO industry?

Roy: I don't think so. There is nothing to do with the IT or BPO industry from what he is saying. As per the US law, if you earn a profit overseas, it is taxed only if you bring it to US. In 2004, they passed a law that allowed 80% rebate for bringing that money back to the US and that led to some USD 350 billion coming to US. Now, there is pressure on President Obama to re-enact that law which was a one year law to give the tax breaks, so that the money earned overseas can be brought back. It is likely to bring in USD 850 billion that US companies have lying overseas. So what he is saying is I will not give tax breaks to companies that have gone overseas, created those jobs, I want to give tax breaks to companies that are there. There is no linkage to IT or BPO.

Q: You have just heard the point that Mr Roy has made that this only refers to American tax law that treats the overseas subsidiaries of US companies as separate entities whose profits are only taxed when they are remitted. How confident are you as Chairman of NASSCOM that that is all there is to it and there isn't something hidden that as yet hasn't been recognized?

Mittal: I think this is not the first time he has made this statement, he had made the same statement before. We had researched this, we had discussed this with the authorities there and Mr Roy is right, this only refers to US company's operation overseas. Even there many of the US corporations have more than 50% of their business coming from outside US and I think if they have to be competitive, they have to play by the rules that are local there.

Q: So you like Mr Roy are perfectly confident that this does not apply to the IT, BPO industry in India?

Mittal: Absolutely.

Q: I suppose the key issue is will the US government hereafter disallow offshoring cost as expenses that can be legitimately claimed in the books of US companies because if they take that step and disallow offshoring cost, that will presumably reduce the benefit US companies get from offshoring and therefore make it to that extent less attractive. Is that a genuine fear for you?

Rao: That is a theoretical option. I don't think it is going to happen. I think to pass such a law is virtually impossible and will end up in years and years of litigation. But theoretically yes, there is a 0.1% probability that some kind of absurd law like that could actually be contemplated. But, I think I tend to agree with Mr Roy and Mr Mittal that is far from the present plan that anyone in the US administration or anywhere else has.

Q: You really do believe that it's just a 0.1% possibility?

Rao: It's very difficult to push through to say only one particular category of import expenses, of services, of goods of certain kinds will not be allowed as tax reduction, I do not know. I think there are enough ways the companies will be able to shield that if they have to. I think I won't be completely against the spirit and maybe even the letter of WTO, so I do not see that kind of thing actually happening.

What I do not like about this statement and what I do not like about the series of statements that have come up from the administration is yes everybody should be concerned about increasing jobs, but why is this seen as binary, some jobs overseas versus jobs in the US. Obama is the leader of the free world; he should be concerned about jobs everywhere in the world and his policies should be for increasing jobs in India, in China and in the US.