H-1B visa ban to hit margins, attrition rate of Indian IT firms

The US President Donald Trump's decision to stop all kind of H-1B visas for the next one year comes as a major jolt for Indian IT firms and is likely to hit them where it hurts the most: margins and attrition rate.

The move comes at a time when Indian IT companies are trying to reclaim the former glorious levels of margins, and contain the high attrition rates, the proclamation, which is aimed at pandering to the domestic sentiments before elections, is expected to send the plans of Indian IT companies for a toss this year.

The move is likely to increase the attrition rate among employees who will not be able to go on-shore. Last year Bengaluru-based IT major Infosys witnessed its attrition rates reach the record high of 23.4 per cent, and has since been trying to bring it down to acceptable level. The same is the situation with other companies.

"There are significant issues in both retention and attrition of employees. Several companies have even let go of employees as they restructure to factor in diminished demand and projects. Indian companies are also reducing both the number of employees on the bench and the time period they are allowed to be benched," said Anand Bhushan, Partner and Chennai Head, General Corporate, of law firm Shardul Amarchand Mangaldas and Co.

Also read: How does H-1B visa ban affect Indians?

At the same time, the move will escalate the cost as these companies would have to service their US business with local hires -- who come at a far higher cost than H-1B hires. More than 60 per cent of revenues for Indian IT companies come from US businesses. The move is likely to hit the margins of the IT companies at a time when they have been under strain for the past few years. This is because the cost of recruitment is higher for domestic employees compared to their H-1B counterparts.

Meanwhile, some other analysts say that smaller companies would be worse hit because of the move. "We note that mid-tier companies may have a relatively lower rate of localisation," Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas said.

Indian top tier IT companies have been the biggest beneficiaries of the H-1B regime in the past few years. This year also, nearly 2,75,000 unique registrations were submitted during the initial registration period. Nearly 81 per cent of submitted registrations were for potential beneficiaries from India (67.7%) and China (13.2%).

However, the rejection rate for Indian applicants has been rising in the past few years. In 2018, the total number of H1-B applications approved to the top five IT majors — TCS, Infosys, HCL, Wipro and Tech Mahindra — stood at a mere 22,429, down from 43,957 in 2017, amid the rhetoric against immigrant workers by the Donald Trump administration.

TCS and Infosys declined to comment on the issue.

However, industry body Nasscom is critical of the move. "The proclamation issued today barring the entry of certain non-immigrants into America and setting new conditions for others is misguided and harmful to the US economy," it said.

The thoughts of Nasscom were echoed by Indian-American CEO of tech giant Google, Sundar Pichai. "Immigration has contributed immensely to America’s economic success, making it a global leader in tech, and also Google the company it is today. Disappointed by today’s proclamation - we’ll continue to stand with immigrants and work to expand opportunity for all," he said on microblogging site Twitter.