The National Association of Software and Services Companies acknowledged that the passage of the law by the US Senate to ban government outsourcing to other countries, including India, is a point of concern.

Nasscom President Kiran Karnik said in a statement: "We are dismayed to learn about the law being passed by the US Senate to restrict offshoring of work contracted out by the US government. Such a law is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by WTO and long espoused by the United States."

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"We understand that the law is limited to the period up to September 2004 and only covers contracts by two government departments. The business impact of such a move on Indian IT industry will be very small, as the share of US federal government contracts in exports of IT software and services from India is less than 2 per cent," he said.

"The offshore delivery model (leveraged by Indian vendors and global IT services vendors) has demonstrated its capabilities in reducing costs and improving quality of IT services. In the context of budget deficits, governments around the world are leveraging offshore resources to lower costs of government services and improve quality of service delivered to the citizens, thereby making governance more effective and productive," said Karnik.

"The US government has a long track record of leveraging IT resources for improving quality of government services for its citizens. Nasscom believes that this trend is likely to continue," said Karnik.

In an era of global free trade, protectionist measures in any country are unlikely to last long, as witnessed in the recent lowering of customs tariffs by India (far more than those agreed upon at the WTO) or the withdrawal of anti-dumping measures on steel by the US, Karnik asserted.

"In keeping with this, we understand that the Indian government has recently decided to award two large contracts to US IT companies in connection with computerisation of the income tax operations," said Karnik.

"It is not a good move and the IT industry worldwide had flourished through global trade," he said.

On the action plan of Indian industry to counter the impact of such a move, Karnik said "It is an issue for the US industry because the primary contract goes to the US companies and they in turn outsource it to India. Therefore, they will take the hit on their margins."

In the first Federal law against outsourcing, the US Senate on Thursday night passed a law barring doling out sub-contracts to India and other countries by American companies to cut their costs.

The measure was included in a $328-billion spending bill passed by the Senate.