Visa freeze to hit US more than India

POLITICAL GIMMICK: Indian IT firms had seen this coming and made adequate preparations
Last Updated : 28 June 2020, 02:53 IST
Last Updated : 28 June 2020, 02:53 IST
Last Updated : 28 June 2020, 02:53 IST
Last Updated : 28 June 2020, 02:53 IST

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On June 22, US President Donald Trump signed a proclamation suspending entry of foreign nationals who present a risk to the US labour market following the Coronavirus outbreak. The order will be effective till December 31, 2020.

The main reason for issuing this order was the fear of rising job losses in the US, which are said to be in the range of 40 million due to Covid-19.

According to the US government, the ban is likely to open up around half a million jobs for the US citizens. According to experts, the new order is temporary in nature.

Following the order, issuing of four main categories of visas has been halted from June 24, 2020. They include: H-1B (given to skilled workers), H-2B (for seasonal workers), L (for executives, managers and specialised workers) and J visas (for cultural exchange, including interns, teachers, camp counsellors among others). However, foreign workers with valid visas already in the US will not be affected.

While the suspension of these categories of visas will affect all those applicants around the world, there will not be any major impact on the Indian IT services firms as they have been reducing dependency on H-1B visas for the last four years.

However, the order has shattered the dreams of thousands of Indian technology workers who are seeking entry into the US for the first time.

To some extent, the move will add to the woes of the Indian IT companies that are already suffering due to travel curbs amid the pandemic.

“The proclamation that bars the entry of certain non-immigrants into America and setting new conditions for others is misguided and harmful to the US economy,” said industry body Nasscom.

Until the Trump administration took charge in 2017, the Indian IT Services companies were the major beneficiaries of the H-1B visa programme.

The United States Citizenship and Immigration Services (USCIS) issued a total of 3,88,403 H-1B visas during FY2019 (October 2018 to September 2019 period) including fresh and renewals, of which the share of India stood at 71.7%.

The number of new annual (initial) H-1B visas is capped at 65,000 with an additional 20,000 for highly-skilled labour with a Master’s or a higher degree from a US university.

Three categories of IT companies apply for visas. First, Indian IT services companies such as Infosys, TCS, Wipro, and HCL among others.

Second, global IT services companies of American origin like IBM, Accenture etc rely on H-1B visas. Other tech companies like Google, Microsoft and Deloitte among others also rely on H-1B.

Third, captives like Walmart, JP Morgan, Goldman Sachs and Target among others seek these visas. These companies have been getting visas much easier compared to Indian IT services companies, says Siddharth Pai, Founder, Siana Capital, a venture fund management company focused on technology.

Technology companies

“Ever since the Trump administration came to power, it has been very easy for American-origin companies like IBM, Accenture among others to get H-1B visas. Also, other technology companies like Google, Microsoft and captives like Walmart, JP Morgan and Goldman Sachs have been getting visas regularly. It is only the Indian IT services companies that are facing trouble in getting the visas,” Pai says.

According to experts, the impact on Indian companies is temporary in the short-term as they have been reducing their dependency on visas.

Instead, they are hiring locals in the US. The move is likely to hurt the American companies most as they have been increasing their dependency on H-1B visas.

“The US move to restrict visas will have very limited impact. However, over a period of time, the cost of operations will increase for Indian companies as they go for hiring talent locally in the US,” Suresh Rajan, Executive Chairman and Founder of LCR Capital Partners said.

Talent crunch, H-1B rejections, local hiring, higher sub-contracting and lower onsite utilisation resulted in increase in the onsite cost structure for Indian IT over the past two years.

“Sending engineers from India using the H-1B visa is 30% cheaper compared to hiring locals in the US. They will have to increase offshoring to overcome the current situation,” adds Kamal Karanth, co-founder of Xpheno, an IT staffing company said.

In the short-term, medium-sized Indian IT firms will have difficulty in completing projects on time.

“Hiring locally in the US will be difficult for medium-sized companies as it will add more cost to their operations. They also do not have a big brand unlike top-tier IT firms to attract local talent,” says Aditya Mishra, CEO, CIEL HR Services. However, blanket ban on issuing visas will hurt American companies like Google or Microsoft more than Indian IT services companies.

“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,” said Sundar Pichai, CEO, Google and Alphabet, in a tweet.

Cost pressure

Are IT firms prepared to face the situation? Yes, to some extent. With the visa issuance norms being tightened in the USA by restricting the entry of entry-level programmers coupled with increasing compliance and evidence requirements adding to cost pressures, Indian companies have started reducing their dependency on H-1B visas. Over the last four years, they have seen up to 60% reduction in visas.

Instead, they are now ramping up their onshore hiring in the US. “All the Indian IT companies have started hiring in the US. Our companies have reduced their dependency on the H-1B visas. So far, the top IT firms such as TCS and Infosys have hired more than 10,000 local workers over the last five years in the US. However, in the short-term, the ban would hamper their plans to move workers to the US,” Rabindra Srikantan, MD, ASM Technologies and Convenor, CII Karnataka Technology & Innovation panel said.

Another option for the Indian IT companies is to bring the work offshore. “Indian IT companies will have to change their delivery models to overcome the visa rejections, by bringing more work offshore. They will have to keep 90-95% of resources offshore going forward,” says Pai.

They also need to use more digital services such as cloud computing, automation and “bots” to deliver on-time and this will reduce their dependence on visas, he adds.

Other options available are exploring setting up development centres near shore. They can explore places like Canada and Mexico to set up development centres, which are just two hours away from the US, says Rajan.

Overall, the impact of proposed changes is expected to be negative on the margins of Indian IT services companies, though unlikely to impact the credit profile of Indian IT Services companies.

Published 27 June 2020, 18:00 IST

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