A losing game

US Visa Fee Hike

The United States’ government has made a hefty increase in H1B Visa fee payable by software engineers and other professionals seeking to enter the US. Professionals are allowed to take employment for six years under this visa. Previously applicants had to pay Rs 1.06 lakh as fee which has been hiked to Rs 1.98 lakh. Consequently, it will become difficult for Indian software engineers to migrate to the US.

The US government hopes that this move will reduce the competition faced by US engineers and open up job opportunities for them that were till now being grabbed by Indians. American engineers will not have to face competition from Indians who were willing to work for lesser wages. Indian software companies like Infosys and Wipro offer services to US companies from their US-based offices.

The increase in fee has been made under pressure from the American voter who perceives that Indian engineers are taking away jobs that truly belong to them. Unemployment at 9.5 per cent is forcing the US lawmakers to abandon their traditional stance of free markets and to take the direction of protectionism.

The measure is specially targeted towards Indian companies. The increase in fee will only be applicable to those companies that have more than one-half of their US employees on H1B Visa. Companies like Microsoft employ larger number of professionals from India than many Indian companies. But their overall payroll in the US is larger hence H1B visa holders constitute less than one-half of their payroll and they will not be hit by this law. On the other hand, Indian company with fewer H1B visa holders will be hit because its total payroll in the US is smaller.

The increase in visa fee appears to be harmful to India and beneficial to the US on the first reading. Indeed, immediately fewer engineers will migrate to the US. This short term impact has led our commerce minister Anand Sharma to condemn the increase in fees. Indian officials have even threatened to take up the matter in the World Trade Organisation.

While we must certainly pursue to contest this anti-India measure, there is no need to get overly worried. This measure will rebound and hit the US in the long run. Gary Shapiro, president & CEO of Consumer Electronics Association of the US says on the basis of a study by Vivek Wadhwa of Duke University that “immigrants to the US founded more than half of all Silicon Valley start-ups created in the past decade. Half of all Silicon Valley engineers are foreign born, up from 10 per cent in 1970, and about 40 per cent of all US patents go to immigrants.

These immigrant-founded companies employed 4,50,000 workers and generated $52 billion in revenue in 2005. In the same tone, Microsoft Corp chairman Bill Gates has urged the US administration and lawmakers to increase the immigration limits for foreign workers who can be hired by US companies on the H1B visa programme.

Flaw of the system

The US education system is producing fewer math and science graduates than countries like India and China, and top IT workers in those countries and others are more often opting to stay home instead of work at a US company, Gates said. Availability of fewer skilled engineers from India will force American employers like Microsoft to employ high-paid low-skilled Americans. This will erode their global competitiveness and hurt the US economy.

The long term impact on the Indian economy is likely to be beneficial. Web-conferencing has made it possible to talk to persons sitting thousands of miles away just as they were sitting on the same table. This has led to a decline in the number of engineers being sent to America by Indian companies lately.

Infosys had requested 4,559 H1B visas in 2008. This had declined to mere 440 in 2009. A similar decline is seen by Wipro, Satyam and TCS. Till recently the H1B quota used to get lapped up on the very first day of opening. This year, however, only 28,000 applications were received many months after opening of the 85,000 visas that were available. The demand for H1B visas is declining in tandem with improvement of communication technologies. Increase in visa fee in this situation is like flogging a dead horse.

According to one report, Infosys’ revenues from onsite provision of services in the US were 47 per cent and offshore revenues from operations in India were 53 per cent.

Infosys is capable of raising the share of offshore operations in India to 95 per cent. The company has already conducted pilot programmes with couple of clients in the US in this direction successfully.

The immense value to H1B visa that prevailed in the yesteryears has clearly evaporated into thin air. It means that software contracts will continue to flow to India. Difference will be that previously a large part of these contracts was executed onsite in the US. Now most will be executed in India. This will be harmful for the US. The spread effects of technological innovation will accrue in India, not in the US. This will erode the technological lead of that country. Money that was being spent by Indian engineers in the US will now be spent in India.

I reckon the US has sunk into a trap. Increase in visa fees will lead to greater outsourcing and less jobs for American engineers. Reduction in fees will lead to more immigration and again fewer jobs for American engineers. Either way there is no escape.