The US state of Indiana has backed down over a controversial deal with Tata Consultancy Services.

The Governor of the US state of Indiana has succumbed to massive pressure from local media and workers’ unions, and pulled the plug on a $15.4 million IT services contract with Indian company Tata Consultancy Services (TCS).

Indiana’s anti-offshore stance is not unique. In the state of New Jersey, Senator Shirley Turner is attempting to create legislation to ban state contracts from being outsourced to overseas companies. Her gripe stems from the New Jersey Department of Human Services awarding Arizona-based company eFunds [EFDS] a contract to service paperwork for the state’s welfare recipients. eFunds ran part of the project from a call center in Mumbai, India, but one year later, the work was relocated back to a call center in Camden, New Jersey.

Indiana’s decision to scrap the TCS contract will appease voters, media and unions in the short term, but it will probably force the state to spend more taxpayers’ dollars on revamping the benefit claims system than it had planned. New Jersey now spends $340,000 per month on supporting its welfare benefits applications from a call center in Camden, which represents a 28% premium over the $266,200 monthly charge it was paying for the service when it was delivered from Mumbai.

The reality is that most large private enterprises in the US already source low-cost back-office processing and IT skills from offshore centers such as India or China, either through wholly owned captive operations, or from third-party services partners.

The government sector has so far proved a bigger challenge for India’s software services companies, which currently derive only a small amount of their revenue from government organizations. This is unlikely to change in the short term, with the offshore issue likely to play a major role in next year’s presidential elections.

But while Indiana’s deal with TCS had a high level of visibility, it is worth noting that many dollars worth of government IT and processing work may be sourced by stealth from offshore locations through US-based services companies such as IBM Global Services and EDS, which are committing huge resources to building up offshore operations.

This article is based on material originally published by Computerwire