America's New Anti-India Backlash

The increasingly bitter contest over the Democratic Party's nomination for the Arkansas Senate seat now held by Blanche Lincoln offers a preview of the problems that will increasingly strain U.S.-India relations. A business advocacy group, Americans for Job Security, is running television ads attacking Lincoln's challenger, Lieutenant Governor Bill Halter, for profiting from a software company called WebMethods that supposedly outsourced U.S. jobs to India. With Indian music playing in the background, one of the ads features several Indians thanking Halter for sending jobs to Bangalore.

Although Lincoln has condemned the ads as racially offensive, her campaign has distributed mailers, emblazoned with pictures of the Taj Mahal, making the same charge. Halter has denied the accusations.

The events in Arkansas highlight a looming but largely unnoticed challenge for policymakers in Washington and New Delhi. India's ascent as an emerging economic power has brought strategic benefits for a U.S. seeking a geopolitical counterweight to Chinese power in Asia. But India's rise—particularly its role as the world's top outsourcing destination—also means Americans will more and more come to view India as an economic rival, just as Japan was regarded in the 1980s and China is perceived today.

Earlier Campaign Rhetoric

The rumblings have been going on for a while. A notable upsurge in opposition to the outsourcing of work to India occurred during the 2004 Presidential campaign, reaching a high point with John Kerry's calling business leaders engaged in corporate outsourcing "Benedict Arnold CEOs."

President Obama also regularly speaks of India as a competitive threat. Following up his rhetoric during the 2008 Presidential campaign, Obama's economic stimulus package last year included a provision restricting the H-1B temporary visa program for skilled foreign workers, many of whom are Indians. He has also proposed tightening tax penalties on corporate outsourcing, vowing to rectify a tax system that "says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." The remark touched off a furor in India, with one leading newspaper declaring that the President has an unfortunate tendency to use Bangalore as "a catch-all term to hang U.S. economic woes on."

A populist backlash against the perceived ill-effects of India's economic rise will become stronger and more broadly entrenched in the coming years as American companies increasingly move to take advantage of the country's expanding commercial opportunities and cost advantages. Even as they retrench at home, for example, U.S. auto manufacturers are expanding production facilities in India, both to serve that country's exploding auto market and to build it up as a global export hub. Last year, the U.S. Homeland Security Dept. warned that the loss of such manufacturing capacity to India could trigger outbreaks of radical extremism. Adding to the anti-Indian recoil are concerns that a good part of recent U.S. productivity gains were created by companies moving more production overseas rather than improving efficiency of workers at home.

College Grad Anxieties

India's emergence as a global technology hub will also generate a political counterreaction. The country is steadily enhancing its comparative advantage in sectors characterized by high-end technological development and skilled labor—areas Americans reflexively regard as U.S. core competencies. Unlike earlier backlashes against globalization, in this one college graduates and even the holders of advanced degrees are worried about their futures and India will increasingly become a target of their fears. The term "Bangalored" has entered the lexicon of Silicon Valley to denote the outsourcing of high-tech jobs.

Obama's health-care reforms also promise to sharpen the outsourcing debate, as U.S. insurance companies, pushed to cut administrative costs, send more IT work to India. As the Economic Times, an Indian business daily, reports, Obamacare gives the outsourcing industry "its biggest bonanza yet ….The opportunity that it throws up for outsourcers is huge and far bigger than the Y2K [computer glitch], which included only changing code."

India's growing prosperity will create major opportunities for home-grown and multinational businesses alike. But as events in Arkansas underscore, there is a political flip side of this development that will be problematic as leaders in both countries seek to enhance bilateral economic partnership.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE