IMF: India-bashing unjustified

First world nations are told: Don't bite the hand that feeds you.

Developed nations like the Australia and the US are gearing up to make anti-outsourcing legislation, though Frost & Sullivan Industry Analyst Jarad Carleton points out that a strictly protectionist government will "hobble its own businesses."

Moreover, the International Monetary Fund (IMF) speaks out against the backlash suffered by developing countries like India. They urge first world nations like the United States and the United Kingdom to consider that they have "the largest net surpluses in business services and hence would suffer the most in terms of the foregone dollar value of such trade," if developing countries like India cease to offer outsourcing services.

Walletwatch.com tells us more.

Mary Amiti, an economist, and Shang-Jin Wei, head of the Trade Unit in the IMF's Research Department, in an article in Finance & Development, an IMF publication, said that between January and May 2004, there were 2,634 reports in US media on service outsourcing, mostly focussing on the fear of job losses. Call centres and computing services in India were the most frequently reported examples.

[...]

US business service imports as a share of GDP have almost doubled in each of the past several decades, from 0.1 per cent in 1983 to 0.2 per cent in 1993 and 0.4 per cent in 2003. India, reported to be the recipient of major outsourcing, itself outsources a large amount of services. Its business services grew from 0.5 per cent of GDP in 1983 to 2.5 percent of GDP in 2003.

[...]

In the final analysis, outsourcing does not lead to net job losses. "Rather, our results indicate that, when looking at finely disaggregated sectors, you find that only a small number of jobs are lost as a result of service outsourcing. Aggregated data would indicate that there are no net job loses when there is sufficient job creation in another sector, which indeed seems to be the case."

"Our results from the US and UK studies suggest that service outsourcing not only would not induce a fall in aggregate employment but also has the potential to make firms and sectors sufficiently more efficient, leading to enough job creation in the same broadly defined sectors to offset the lost jobs due to outsourcing," they said.

The full Finance & Development article can be viewed online as a PDF file in the IMF Web site.

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