US Obama wants to end tax breaks that he thinks lead US companies to shift jobs to developing countries like India. Indian analysts fear this will hit foreign investment and jobs in India.
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| Us shaking hands with India |
These fears are overblown. Indeed the tax changes may unwittingly facilitate the takeover of US firms by Indian one's, showing once again that protectionism ultimately hits the protectionist.
The US imposes corporate tax on the global income of its companies, not just thier US earnings. US companies have long protested that this made them uncompetitive in low tax countries. To reduce this disadvantage, the US made profits earned abroad tax free, until repatriated to the US. This tax break helped US companies established large operations abroad.
In 1980's countries like India and China were considered low- productivity areas that could compete only in labour intensive goods like garments. But in the last decade China has become the world's hub for the most manufacturing and India a hub for many global services. So US companies have flooded into China and India.
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