Indian-Americans and U.S. Politics Blog

Sequestration all set to squeeze the life out of Small Business

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We now face a make-or-break moment for the middle class and those trying to reach it. After decades of eroding middle-class security as those at the very top saw their incomes rise, it is time to construct an economy that is built to last. But the major roadblock ahead is facing the prospect of “sequestration“-or of the budget cuts that will be required to avoid it.

What is Sequestration?

Under the Budget Control Act of 2011 signed by President Obama as part of an agreement with Congress to resolve the debt-ceiling crisis, sequestration is the automatic reduction of spending which will trigger if the spending exceeds certain “caps” set out by the Act. Sequester originated when debates over deficit reduction saw the American government almost default on its debt payments. In order to avert that crisis, Democrats and Republicans agreed that unless they struck a deal on shrinking the country’s debt, cuts would be made to federal spending. The idea was that the prospect of cuts to social services would motivate the Democrats and hurting military spending would do the same for Republicans, issues important to respective parties.

Impact of Sequestration on Small Businesses

Many companies are already being affected by the cuts, particularly those working on federal contracts as government agencies have been holding back on signing new contracts. They’ve also held off approving funds for existing contracts — for example, multi-year contracts that require money to be approved periodically or in increments. This has caused uncertainty about what might happen and when once the cuts are made. Anxiety about budget cuts has been one reason why small businesses have been slow to hire in recent months. Economists warn that these cuts could push the country into another recession.
A study by researchers at George Mason University and the economic forecasting firm Chmura Economics and Analytics estimated that small businesses across the country would lose more than 950,000 jobs as a result of the budget cuts. More than 157,000 of those job losses would come from federal contractors, with the rest from subcontractors catering to contractors and their employees. The study was led by George Mason professor Stephen Fuller, who has studied the impact of public policy on the local economy.

It’s not known how many small businesses would be hurt, or how much revenue they would lose but according to The Small Business Administration there are about 130,000 small companies with federal contracts.

The 2014 budget proposes cutting nearly $10 million from the U.S. Small Business Administration’s signature Small Business Development Center program, and funneling about $40 million into new entrepreneurial development programs.

With over 12 million people unemployed, small business is critical to accelerating the economic recovery and creating the jobs America needs. According to the Bureau of Labor Statistics, small businesses have created about two out of every three jobs gained over the past 35 months and have added jobs in every quarter since early 2010. But since the recession began, U.S. commercial banks’ small business loan portfolios are down 17 percent. And loans under $100,000 have declined even more steeply, over 19 percent. During that same period, the Small Business Administration supported over $100 billion in new lending to over 218,000 small businesses. In better times considered the lender of last resort, the Small Business Administration, for many small businesses, has become the only option. The agency’s loans have become a lifeline for the franchise industry and other segments that weathered the recession better than most.
Limiting job creators’ access to capital at this critical point in the life of our nation’s economy is a profoundly bad idea. We are depending on our small businesses to grow and put our communities back to work. Eventually it rests with our elected leaders to put aside their risky, partisan gamesmanship and come together to pass legislation and enact the policy in a way that reflects our national needs and priorities.
What can be done?

It also doesn’t help small businesses or the economy as a whole when special tax treatment is given to hedge fund managers and Wall Street powerhouses. The controversial “carried interest loophole” lets finance titans pay a top tax rate of 20 percent on part of their earnings, only half of what they would pay at the top rate for normal wages and salaries.
The bottom line is that policymakers concerned about our economy should be leveling the playing field for small businesses, not perpetuating tax breaks for the big boys. The CBO estimates that ending subsidies to gas and oil companies would shore up $40 billion over 10 years and closing the carried interest loophole could raise $21 billion. Together, these measures would significantly offset cuts caused by the sequester.
However, finding short-term solutions to ongoing budget crises shouldn’t be the end goal. Small businesses want policymakers to resolve this problem for the long term so they and our economy have the sustained fiscal certainty they need to thrive.
The Time to Act is NOW

Alliance for U.S. India Business (AUSIB) is organizing a Government Contractors Session focusing on the “Sequestration, its short and long term impact on small business growth & regulatory relief” on Tuesday, July 23, 2013 at the Capitol Hill, Washington DC. The session will be graced by some of the most eminent speakers, the people who matter. They are:

• Congressman Sam Graves: Chairman, Small Business Subcommittee
• Jordan Valdes: Senior Advisor, SBA Office of International Trade
• CIO and OSDBU*s from some key agencies
• Congresswoman Yvette D. Clarke: Small Business and subcommittee of contracting and work force
• Senator James Risch: Small business and Entrepreneurship subcommittee
As our lawmakers debate, spending sequestration, healthcare, and immigration reform will have long-lasting impact on businesses across the country. In other words it will decide how quickly we can put our unemployed back to work. The AUSIB Small Business Forum will provide a unique insight on these key issues. The one-day session will feature lawmakers and agency officials who will be responsible for crafting and implementing programs that will determine how business interacts with government.
Do not miss this opportunity to get access and information that can provide you with an edge over your competition!

RSVP: events@usinpac.com, Call: 202-276-7946.
*Office of Small and Disadvantaged Business Utilization

 

Defence And Strategic Affairs Blog

Investing In Security: Developing US-India Defense Relations

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Once unthinkable to a level of being a taboo subject during the cold war, US-India military relations have grown exponentially since the signing of a new Defense framework agreement in 2005.  Annual bilateral training exercises (known as Yudh Abhyas involving India’s 99th Mountain Brigade and the American 82nd Airborne Division’s 1st Brigade) have been warmly received and annual US sales of military equipment to India now top $8 billion.  Given ongoing and serious security challenges in the region, fostering even more efficient and effective US-India defense ties is a critical bilateral priority with significant potential yet to be tapped.

American Deputy Defense Secretary Ashton Carter made a visit to New Delhi a year ago and stressed the urgency of exploring bilateral missile defense cooperation.  Ongoing debate over FDI liberalization of India’s defense sector has dominated dialogue since, but consultations on joint co-development of military systems could be the breakthrough that helps generate considerably more trade and boost U.S. export revenue.

On purely strategic grounds, India must show greater resolve in developing its ballistic missile defense capabilities.  Its neighbors China and Pakistan possess formidable ballistic and cruise missile forces.  Internal political and ideological concerns within the government over becoming more interlinked with the United States on defense matters over traditional suppliers like Russia, and how it affects India’s strategic authority, will have to be addressed in a more serious and urgent manner.

Given that Pakistan has refused to commit to a no-first-use policy and grave international concerns over the safety and security of sensitive Pakistani military equipment, the United States should make every effort to help India develop missile defense technology and overcome compulsions to do so purely indigenously.  The American experience in South Asia over the past ten years have exposed a rather pressing need for The United States to find and develop more stable and reliable strategic partners and stronger, more co-operative guarantors of regional stability.  If longstanding biases can be overcome, it will considerably improve the security situation in Asia and further one of the critical bilateral relationships in the geopolitical sphere.

 

Defence And Strategic Affairs Blog

BRICS – India is the biggest loser

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Guest post by Sumantra Maitra

Among other interminable dross that were churned in the recently concluded 5th annual BRICS summit in South Africa, was the idea of a Development bank, by the five ever-rising economic powers. Although the details are vague, like any other diplomatic summit declaration trying to obfuscate the deep fissures within this coalition of unequals, the fact that India agreed to this disaster in the making is a new low in the foreign policy of a country, which is not much known for rational and realistic choices. The idea behind the development bank is indeed noble, “to address…the infrastructure gap in developing countries…”, especially in Africa. But the intention to make it successful or meaningful or the national interest of each member of the coalition is not clear. One thing, which is however clear, is Indian ambivalent skepticism about bandwagoning with any power simultaneously coupled with the Nehruvian idea of being a “messiah of the mass” and trying to be a leader of the third world, which reflects the mindset of Indian bureaucracy and ruling elite, is increasingly drawing India into a dilemma.

The BRIC leaders

The BRICS is not an alliance. It is an arbitrarily formed group, mentioned in passing by an ex-banker, which was so captivating to the ruling elite of the grouped nations that they thought of formalizing it in an institution. Initially starting as rising economies, a perceivable counter balance to the G-8, these economies are no longer rising, with deep structural and institutional flaws, different modes of governance, deteriorating law and order situation and freedom of expression and censorship issues, different economic fundamentals and most importantly, absolutely different and divergent world view and interest. Joshua Keating pointed out why the BRICS couldn’t be more different than each other. The last addition to this coalition, South Africa, is the messiest of them all. The selection of South Africa is ofcourse controversial and political, regarded often as a quota position from the African continent, as it leaves out far more competent and growing economies like Indonesia, Turkey and South Korea. This comes when BRICS are accused of neo-imperialism, and banners like “don’t carve out Africa” were found everywhere near the summit in Durban.

It is well known, that the primary drivers behind the ideation in the BRICS are Russia and China. Russia wants to bandwagon with China to balance the influence of United States. The motivation and Great power nostalgia of Russian elite is simple enough to fathom. The Chinese interest is however far more complex. As a growing hegemon, China actually has interest in Africa, both geo-politically and economically. The resources of Africa are mostly still unexplored, and the market potential of cheap Chinese manufactured goods is enormous. This however comes at a time, when China is increasingly viewed with suspicion in Africa. The last couple of years have seen the murder of Chinese engineers by disgruntled and exploited African labourers, incessant strikes in Chinese operated industries and mines, and the now infamous op-ed by Lamido Sanusi, the governor of Central Bank of Nigeria, where he accused China of having neo-colonial ambitions. China now wants to portray itself as a benevolent and altruistic force, and therefore wanted to soothe Africa under the BRICS front. India, for all its independent and non-aligned foreign policy, is legitimizing Chinese actions.

It is puzzling to fathom why India is following Chinese and Russian lead. For a start, Russia is not what it used to be. It clearly views China as a far superior partner than India, and a market for superior weapons and technology, ironically at the same time when India received massive aid grant from Japan. India and China are not really partners, and as I wrote here before, will probably not be in the near foreseeable future. Nor is Indian business interest in Africa that important, scalable or maintainable. For example, assuming that India invests in some African country under the BRICS development bank, tomorrow if there is some kind of unrest, is India capable or willing to defend its business interest? India never showed any willingness to aggressively promote or defend its business interests, be it Afghanistan, Maldives, or South China Sea, and there is no reason to believe India would do that in Africa. India also lacks such far off power projection capability. Which brings us to question the wisdom; do the benefits of Indian investment in Africa outweigh the cost? What is the incentive of pledging tens of billions of dollars, all Indian taxpayers’ money, in a region which is beset by uncertainty, instability and conflict, or starting a monetary organization, potentially rival to IMF/World Bank which will not be of any direct benefit to the already slowing economy and growth rate?

On the other hand, India will eventually be viewed as just another neo-colonial resource grabbing power like China, if it continues to be with the BRICS. The respect that India enjoyed in Africa, and the goodwill as a potential democratic competitor of China will fade away, with India just being a satellite of Chinese ambitions, a satisfied mid level power in an institution guided by Russian and Chinese geo-political interests. Nor is Indian interest, in the BRICS assisted conflict resolution in Central African Republic understandable. Again, the question is geo-political, what IS India’s interest? Tomorrow if Russia leads the BRICS into conflict resolution in Syria, will India be willing to commit its resources?

As this Economist essay explains, India is utterly confused about its growing clout and new found respect as a rising power, lacks a political will, strategic culture, a status-quo bureaucracy, and timely and fast decision making infrastructure. Added to that is the notorious ambivalence towards aligning with the West, even though being perfectly aware that in the great scheme of the game, China stands as the largest potential rival. This ambivalence and skepticism stems from the utterly discredited NAM mentality which is still somehow widely followed among the Indian foreign policy circles, and the moral, altruistic, socialist Nehruvian world view, without any long term planning or Realist Raison D’etat. With the BRICS now attracting countries like Egypt, a slow and painful repetition of the outdated Indian NAM policies are in the process. Everyone knows how NAM turned out. One can only hope that India’s policymakers realize soon where her interests lie.

(Sumantra Maitra is a freelance journalist from India and a tutor of New Zealand Foreign Policy and Theories of International Relations, at the University of Otago, New Zealand. You can follow him on twitter @dailyworldwatch.)

Immigration Blog, India Business, India-US Relations Blog

The Good, The Bad, and The Ugly

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A draft of a new US immigration law likely to be announced this week, holds mixed fortunes for international IT services companies and American businesses.

Globally competitive firms with offices in America, often send a number of foreign skilled workers on H-1B Visas to service American clients.  This helps boost operating margins and reduces costs on to American consumers.  The number of these Visas are currently capped  at 65,000 per year.

The legislation is seeking to increase the cap on H-1B Visas to 110,000, with an extra 25,000 for those who have earned advanced STEM degrees in the US.  This part of the bill has been warmly received by businesses and America’s friends and partners overseas.

However as part of a deal to create a pathway to citizenship for over 11 million people living in the U.S. illegally, other proposals in the bill will dictate to employers that they must pay workers on the highly skilled program on par with onshore workers and require businesses to advertise open jobs for 30 days on a U.S. Department of Labor website before they could bring in a foreign workers.

The result is that many U.S. business who have a significant contingent of overseas employees would be forced to pay significantly higher fees and endure larger operating costs.  For service based businesses like IT management, most of the operating costs are purely from labor.  Changing the pay rules may in effect drive many onshore companies out of business entirely, lowering tax revenues and in effect driving operations offshore completely.  In a growing migration to cloud based IT management, that possibility is ever more likely.

Concern is also being voiced that these provisions have been made for the specific purpose of targeting Asian individuals in the United States and overseas, and that campaigns for comprehensive immigration reform will merely descend into a vote-bank exercise for future elections.

Immigration Blog

The H-1B conundrum

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A new legislation intends to check H-1 B related frauds

Guest post by Madhu Nair

Ever since the 2008 economic crash, Americans have been accusing the H-1 B visa as an instrument used to steal their jobs. The United States is battling a high unemployment rate and the voice for a pro-American job policy is increasing day by day. With critics crying foul over the provisions of the policy and its abuse by technology majors, America’s H-1B visa policy has run into troubled waters.

According to a recent report, Senator Chuck Grassley, a ranking member of the Senate Judiciary Committee, has introduced a legislation which aims to eliminate fraud and abuse of the H-1B visa policy. The legislation intends to make reforms to increase enforcement, modify wage requirements and ensure protection of visa holders and American workers. Grassley says that the legislation will not only benefit American workers, but also help U.S. companies to get quality specialized workers from abroad.

Grassley adds, “Somewhere along the line, the H-1B program got side-tracked. The program was never meant to replace qualified American workers, but it was instead intended as a means to fill gaps in highly specialized areas of employment. When times are tough, like they are now, it’s especially important that Americans get every consideration before an employer looks to hire from abroad.”

The legislation, if passed, may affect jobseekers from India and elsewhere. The recently passed H-1B and L-1 Visa Reform Act of 2013 ensures that an H-1B application filed by a company employing 50 or more U.S. workers will not be accepted unless the employer attests that less than 50% of the its workforce are H-1B and L-1 visa holders. This, in addition, to the legislation introduced by Grassley could mean trouble for companies who seek cheap and quality workers, largely from developing economies. A recently published article had also highlighted that many of the H-1B hires do not belong to the “best and the brightest” category. This further pushed the need to reform the policy which has gained a political face of late.

With a cap of 65,000 H-1B visas a year, Indian companies were seen scrambling for approvals with over 50,000 applications being filed on the very first day of screening. Market analysts say that the cap on visas and other such compulsions will impact the margins of companies adversely. The increasing unemployment has also forced companies in the U.S. to take to sub-contracting and local hiring. This further adds pressure on companies to take to other means in order to achieve their ambitions.

While a short-term impact looks imminent, it would be better to come out with options to avoid such situations in the future. The global economy changed remarkably after the 2008 crisis with the world turning towards developing economies to pave the path ahead. India, with its growing young and abundant workforce, has an edge over other countries in reaping the benefits. But it would be rather cynical to neglect developed economies while doing so. The only way forward is to find a middle ground where countries can work together for a sustainable future.