Indian information technology stocks fell on Tuesday as a proposal to redefine the norms governing employment visas for technology professionals, introduced in the US House of Representatives, rattled the $150-billion outsourcing industry and prompted an assurance from the government that it will intercede to safeguard Indian interests.On Monday, Democrat Zoe Lofgren — who represents a Congressional district in California that includes Silicon Valley — introduced ‘The High-Skilled Integrity and Fairness Act of 2017’ which, if turned into law, has the potential to increase salary costs for technology companies, force them to alter hiring practices and significantly impact profits. The Bill proposes a skill and wage-based system for allocation of H-1B visas and seeks to more than double the minimum wage for an H-1B visa holder to $130,000.
Even as ‘H-1B’ trended on Twitter and Facebook, the stocks of major Indian software exporters such as Infosys, Wipro and Tata Consultancy Services fell by 2.01%, 1.62% and 4.47%, respectively, on Tuesday as news broke about the proposed Bill. With a fall of 3%, the S&P BSE Information Technology index was the biggest loser among BSE’s sectoral indices.
“India’s interests and concerns have been conveyed both to the US administration and the US Congress at senior levels,” said Vikas Swarup, spokesperson for the Ministry of External Affairs.
Given the likely impact that such legislation could have on thousands of Indian professionals, the issue will feature prominently during talks between Prime Minister Narendra Modi and US President Donald Trump later this year, senior officials told ET.
On Monday, a report by Bloomberg said an executive order to be signed by Trump would seek to curb the use of long-term H-1B visas, and the short-term L-1, E-2 and B1 visas.
Foreign policy experts reckon that untangling this knotty issue will be a challenge for the Modi government, which is very conscious of protecting the interests and welfare of the Indian diaspora. Lofgren’s proposed legislation prioritises market-based quota of H-1B visas to firms willing to pay 200% of a fixed wage. “For H-1B dependent firms the changes to regulations and laws will likely create margin headwinds, (especially) for firms such as Cognizant, Infosys and Wipro,” said Peter Bender-Samuel, CEO of research firm Everest Group.
“This is likely to accelerate the adoption of the new digital business models which hold the promise of margins which are not dependent on labour arbitrage,” he said. TCS, Wipro and HCL Technologies did not respond to emails seeking comment. Infosys declined to comment.
Moving work back to India
Analysts are of the view that outsourcing firms will need to now confer with customers about moving work back to India.
“Earlier, clients liked to have people onsite. But with these new rules, they will become more receptive to having fewer people onshore,” said Dinesh Goel, the India head of IT research firm ISG. The US accounts for nearly 65% of revenues of the Indian IT services industry.
Industry lobby National Association of Software and Services Companies (Nasscom) said Lofgren’s proposed Bill “definitely has an impact on the global delivery model”, which, simply put, translates to executing a technology project using a team that is distributed across geographies.
The Bill’s provisions also mean that IT firms will now look at sending more senior employees like project managers or team leaders to the US, instead of programmers or technicians.
Currently, the average salary of a technology professional on an H-1B visa is $65,000-75,000, according to Alka Dhingra, assistant general manager at IT staffing firm TeamLease Services.
At present, the US has a cap of 65,000 visas for the general category and allows a further 20,000 people who have a US masters’ degree from an accredited institution to apply. In a year, nearly 200,000 H-1B visa applications are approved, including visa renewals, extensions and other exempt categories, according to industry estimates.
TeamLease’s Dhingra said H-1B hiring saw a downward trend in 2016.
“For TCS, US visa applications narrowed to 4,000 in 2016 as against 14,000 in the previous year and only a third of them were granted last year,” she told ET.
Fate of bill
Experts are divided over whether the Bill would be passed. Phil Fersht, CEO at IT research firm Horses for Sources, thinks the chances of the Bill being passed into law are high, with some amendments, given the strong support from several politicians. “Immigration of temporary workers to the US will be completely thrown into turmoil, but it will also encourage US businesses to hire talent in non-US countries in specific areas where they need the expertise,” he said.
In contrast, Ron Hira, associate professor of public policy at Howard University and a long-time critic of H-1B visa abuse, said the likelihood of the Bill getting passed was fairly low. “The firms that pay rock bottom will likely get fewer visas in such an allocation process,” he told ET over email.
The change in business model will also depend on the existing working model of individual IT companies, which have been trying to increase local hiring in the US. “If companies do more remote infrastructure management, they will need fewer people onsite. But if they have a higher mix of consulting or digital, then they will need to meet the client face-to-face. The winners and the losers are not so easily apparent,” said ISG’s Goel.
Another Bill proposed by Senators Chuck Grassley and Dick Durbin also seeks a reform of the H-1B visa programme. It proposes, among other things, that technology companies make “a good-faith attempt to recruit a qualified American worker” before employing H-1B workers.
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