Indian IT to see costs rise, biz slow as Trump looks at H1B visa curbs

Image via Shutterstock
Indian IT services firms will see costs increase and business slow as the US President Donald Trump gears up to sign an executive order on Wednesday that would make sending engineers on H1B visa to the US expensive and time consuming.

The US administration has targeted Indian firms such as Tata Consultancy Services, Infosys and the US-based Cognizant that follows the offshore model for the visa programme, accusing them of paying lower wages than that set by the Department of Labour.

US officials claimed that only 5 per cent of the H1B visa holders in 2015 earned higher wages set by the Department of Labour, while four out of five workers were paid less than the median age. The whitehouse blog, which quoted unnamed officials briefing the US press, targeted companies such as TCS, Infosys, Cognizant saying that they applied for large number of H1B visas to get better chance in the lottery system, a lenient implementation of the laws often resulted in hiring of H1B employees, not always high-skilled, to do works of senior American workers.

"With US administration trying to strictly enforce the law for H1B visas, Indian IT firms will see a tremendous cost pressure. In addition, if the the lottery system is abolished for visa issuance, it will only add to their cost," said Pareekh Jain, analyst at HfS Research India.

For a good perspective on where the numbers stack up. Infosys, India's second largest software exporter, earned 56.8 per cent of revenue with only 28.8 per cent of effort or resources onsite in client locations such as US and Europe. With 70.2 per cent effort in offshore locations such as India, the company earned 43.2 per cent revenue of Rs 68,484 crore in fiscal 2017.

Infosys chief executive Vishal Sikka is trying to change this by building a model that delivers software led services, removing dependency on people, while ensuring their productivity increases multifold. At the same time, the firm is looking to hire more local engineers, which includes replicating the model of recruiting hundreds of freshers from college campuses and training them in its local training schools.

TCS, which has been named by US officials of gaming the H1B visa system, dismissed the allegations saying the company has always be compliant with the visa rules.

"As far as visas are concerned, we have been complaint and we would be compliant. US remains our largest market. So we will continue to stay in US and meet our customer requirements. For doing that whatever business model changes have to be done we will do that," says Ajoyendra Mukherjee, head of HR at TCS. " We are hiring locally in all geographies. Last few years hiring onsite has been higher. We are going more and more towards less visa dependent business model."

TCS says that it complies with local wages and would tweak its business model based on customer needs. Indian firms over the past few years have reduced dependency on H1B visas, while US firms such as Accenture, IBM and Google have stepped up hiring engineers from India and send them on the coveted visa. However, there has been no backlash by US administration on this.

Poorvi Chothani, managing partner at LawQuest, a global immigration and employment law firm, says that the executive order is expected to commission the Department of Homeland security to review the current H-1B programme as the US administration wants to only allow highly-skilled foreign nationals who will contribute to the US economy.

"The thrust is on the economy and not only on jobs. It is horrible that they are naming some of the large Indian companies against which there is no concrete evidence of abuse. But there are instances of several other companies that have abused the system and brought the entire Indian IT sector to this position. There also are instances where some companies have used business visas for their Indian employees to go and work on short term projects or in rotation on larger projects, which is completely illegal," said Chothani, adding that going forward the US immigration classifications will be more strict and Indian companies should see stringent scrutiny of applications and compliance, from the US government.

This order will, however, not have an impact on the applications filed this month for the current year.

"Based on the report there could be Congressional action to revamp the work-based US immigration system. There is also a chance that President Trump could issue another executive order (based on the report or otherwise) that temporarily suspends some visa options and/or immigration benefits," pointed out Chothani.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel