I'm not sure if that's fair. If you produce a labor-intensive product of such variable utility (engineers), then you would expect the utility to drop to reach a price equilibrium. If there wasn't a demand for crappy engineers, the quality would rise - along with price.

Therefore, their education is lousy precisely because these engineers are employed.

India may just have conditions of production, whether by providence or design, that are more efficient at producing minimally satisfiable engineers than anywhere else. Of course I'm talking about a hypothetical India that produces engineer shaped widgets - so no offense intended:)

"India produces large numbers of bad engineers" - that's a sweeping statement. Among all countries, India sends the largest number of engineering students to the US (according to NSF - http://www.indianexpress.com/news/india-sends-maximum-number...), which is not bad for a country producing "bad" engineers. I am a professor in a US university, I work with a lot of technically trained undergraduates, and I can say that students here (as anywhere) when they complete their undergraduate education, are merely ready to become an apprentice at a company. Their education continues in the company (or research lab) they join. So when you compare recent Engineering undergraduates from different countries, I am willing to bet that their quality is on average not that different.

If they're in your class, India is not producing those engineers.

At any rate, we're talking about outsourcing. If they're not in India anymore, then by definition the US cannot outsource to them.