Why should Americans be angry at Indians and offshoring?

Fear and loathing are on the rise in the U.S. as a fall-out of the deepening recession and resultant job-losses. Moreover, India is now at a great risk of being roughly treated by the U.S. policy makers as protectionism is starting to rule the U.S., writes Steve Hamm in BusinessWeek.

But any anger on Indians would be unwarranted. The author takes stats from the Bureau of Labor Statistics to show U.S. employment in the category of computer systems design and related services to be at 1.463 million in February - down just 5,000 from a peak of 1.468 million last November. Though this is the category of employees that would be most affected by IT offshoring, the figure is just below an all-time high - and at a time when Wall Street has fired thousands of techies because of its own mistakes, not anything the Indian tech industry has done.

Another story which adds heft to this argument is an initiative by Nasscom, the Indian software and service trade association, to get McKinsey & Co. during the last recession to do an analysis of the impact of Indian outsourcing on the U.S. economy and jobs. The results showed a positive impact - more jobs created. The argument is that by making American companies more efficient, offshoring makes it possible for them to grow and hire additional employees. There's logic to that, but, since the Indians hired McKinsey to do the study, the conclusions aren't as credible as they would be if the study was independent.

However, the U.S. Senators Richard Durbin and Chuck Grassley are crafting new legislation aimed at further tightening H1B and L1 visa rules, which is expected to be submitted to Congress by April 3. Visa reform becomes dangerous if the legislation ignites an angry broad-based backlash against India and offshoring.

Though a measured dose of protectionism can be useful at times of crisis or in response to abuses by other nations, it's not good if it erects major barriers to trade. It could harm both nations if the U.S. goes after India. 

Nandan Nilekani, co-chairman of India's Infosys, while promoting his latest book 'Imagining India' in New York said, "Unlike China, India does not have a trade surplus. It needs to export more if it is to keep GDP at a healthy rate. It also needs to continue to grow at a healthy rate or risk an uprising by people left out of the tech-led boom." Concerning the potential for U.S. visa restrictions, he said, "Trade is a two-way street. We need to keep the movement of people open."

That is a key point. Trade is not just about merchandise. It is about labor and capital, as well. And if American pundits and policymakers fail to realize that, trade between the U.S. and India will be neither free nor fair.

References by the author: a New York Times report, an analysis from economist and author Paul Collier's book, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It.