The U.S. Senate passed a bill on Friday banning the outsourcing of federal work to countries abroad. The measure comes in the wake of a new domestic tax in India that enables the Indian Government to tax companies whose operations in India are deemed ‘core revenue-generating activities.’ Should President George W. Bush choose to sign this bill, he will potentially be saving a number of jobs, but more importantly bucking the trend in outsourcing that has seen many jobs, particularly in the information technology field, transferred abroad. Having identified one way of retaining jobs in the United States, Bush would be wise to devise incentives to prevent the further outsourcing of highly paid technology-based jobs in the private sector.

According to the Financial Times, India’s revenue from technological industries should rise to approximately $15 billion in March — two-thirds of that coming from American companies. It is inexpensive for technology-based companies like General Electric and Sprint to hire workers in India because of their comparatively low wages. In contrast with the relocation of manufacturing jobs to countries such as China and Taiwan, typically, it is not blue-collar jobs that are being transferred to India. According to a report in The Guardian, the former British colony is producing one million new graduates a year. The availability of a comparatively cheap skilled labor market has prompted many Blue Chip and financial corporations to outsource skilled jobs to India.

While some American customers have complained about the service received from help desks manned in India, in fact, Indians are performing numerous roles for many major U.S. corporations such as software programming. If the trend continues, the decline in manufacturing jobs may well be paralleled in the white-collar sector. It is because of this availability of skilled foreign labor that the U.S. Senate prompted a stop on the outsourcing of federal jobs.

Clearly, the role of federal government does not extend to preventing U.S. companies from outsourcing, but with this ban on federal outsourcing, the administration is at least setting a good example. To build on this, the Bush administration should devise tax incentives to discourage outsourcing.

It is commendable that the U.S. Senate and Bush administration finally seem to be placing their focus and energy back on American citizens. However, with federal contracts only accounting for two percent of India’s revenue from technological industries, the benefits accruing from this bill are likely to be small. The real test for the government is to devise a way to persuade the private sector to follow suit.