Modi will pay a price for H-1B visa curbs

By Andy Mukherjee

It’s hard to say what President Donald Trump’s extraordinary attack on immigration will mean for the future of US tech dominance. What’s clearer, however, is the immediate challenge he has created for his friend Narendra Modi — days after wishing him a happy 75th birthday.

Indians account for more than 70% of all H-1B visas. A steep $100,000 entry fee, paid by employers, for every worker entering the US under the program will effectively gut it, forcing large outsourcing companies such as Bengaluru-based Infosys Ltd. to rethink their business strategy. 

What should worry Prime Minister Modi more is how the new rule is being implemented. Introduced as a travel restriction, it had the appearance of an economic sanction, an escalation of the punishment the US leader has meted out to a staunch ally in recent months.  

First came a 50% duty on merchandise exports: Washington told New Delhi that its 25% reciprocal tariff was being doubled because its purchases of Russian oil were helping to finance Vladimir Putin’s war in Ukraine. Having effectively lost access to its biggest overseas market for textiles, gems and jewelry, shrimp-farming and other labor-intensive industries, India was hoping to soften the blow with a tax cut for domestic consumers, lined up to coincide with this week’s start of the annual Hindu festive season.

Washington’s curbs on white-collar talent have poured cold water on that mitigation strategy, too.

Trump’s Sept. 19 move left many middle-class Indian families facing extreme anxiety over the weekend. H-1B visa holders who are currently overseas on work or holiday were told by their employers to make it back before 12:01 a.m. Eastern time on Sept. 21. Those who failed to beat the deadline could get stranded indefinitely. Or their spouses and children might.

By the time White House Press Secretary Karoline Leavitt clarified that the entry fee is a one-time payment, which would only apply to the next H-1B lottery and not to current visa holders, the damage was already done. To immigrant families, an already-arduous pathway to permanent residency in America will look like an impossible dream now. Naturally, even many employees currently in the US would ask companies to move them elsewhere. But where? Canada, Australia, Singapore? Somewhere within India? 

The US tech and finance industries have at least a couple of options besides mass relocation of foreign-born talent. They could challenge the legality of the entry fee. They could also seek carve-outs. Silicon Valley and Wall Street could, for instance, lobby to exempt foreigners with US college degrees in science, technology, engineering, and mathematics, or STEM. Hospitals that rely on H-1B to ease the shortage of doctors may also make a strong case to retain cost-effective access to foreign-born residents.

Other strategies are also possible. Recent research by management professors at Erasmus University and University of Pennsylvania shows that when faced with shocks to the H-1B program in the past, employers substituted talent with transactions. They stepped up acquisitions, particularly of small, domestic targets, in places with a high concentration of skilled workers. If visa restrictions prevent a company from hiring the kind of manpower it needs, it can always find similar talent — foreign-born or local — at another business, which it can then acquire. 

For India, the problem is much bigger. By adding services to a trade war that Team Modi didn’t see coming, Trump may have done more than shave off a few percentage points from outsourcing firms’ margins.

A quarter-century of closer political alignment with the US had a solid economic foundation. Just as the likes of Apple Inc. helped turn China into the world’s factory, large US firms propelled India’s rise in software services exports. That business model is already facing an existential threat from artificial intelligence. Generative AI may be making top programmers more productive, but it’s also hacking away at entry-level jobs. At the same time, US lawmakers are considering legislation that would impose a 25% tax on American companies for payments made to foreign workers for services consumed in the US. 

What makes the latest targeted punishment by the Trump administration doubly dangerous for Modi is that it’s taking place against a backdrop of high youth unemployment and unrest in neighboring countries like Sri Lanka, Bangladesh, and now Nepal.

It’s a tricky time for Washington to repel New Delhi from its geopolitical orbit, and to take away opportunities from the world’s biggest cohort of youth — one by one. In a televised address Sunday, Modi struck an optimistic note. The reduction in the Goods and Services Tax from Monday “will accelerate India’s growth story,” he said. However, with wages under threat for both blue- and white-collar workers, consumers might be wary of big-ticket purchases. Trump’s actions may have made sure of that. 

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.