4 reasons why US immigration bill could damage India

The US draft immigration bill, backed by four Democrats and four Republican senators, has certain clauses that could seriously damage Indian IT with TCS and Cognizant likely to take the severest hit. Even though the immigration bill does not directly attack outsourcing companies, it seeks to limit the number of foreign workers these companies can bring to the US. At least 75 percent of the workforce of these outsourcing companies comprises of foreign workers.

Indian IT companies send thousands of engineers to client sites in the US, on H1-B and L1 visas. However, several lobby groups there argue that Indian IT firms, which are the largest users of H-1B visas( temporary work visas), have been abusing the visa system in the US by bringing cheap foreign workers to replace American workers.

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Under the new bill, total number of H-1B visas will increase to 110,000 from 65,000. However, the bill will limit the overall percentage of foreign workers that outsourcing companies like Wipro, Tata Consultancy Services or Infosys can have in the United States, and will require companies that have 30 to 50 percent of their workforce on temporary visas to pay $5,000 for every new foreign worker they hire.

[caption id=“attachment_766755” align=“alignleft” width=“380”] Indian IT companies send thousands of engineers to client sites in the US, on H1-B and L1 visas. Reuters[/caption]

According to the Indian IT industry body Nasscom, the Bill could force Indian software firms to cut down on the number of employees working on H-1B work visas and hire more local employees to fill those positions.

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The bill may also make it possible for American firms such as Microsoft, Intel, and Google to hire more workers on H1-B visas to fill their vacancies.

Such restrictions will also require outsourcing Indian giants to change their business models drastically which in turn could significantly impact revenues and profitability.

Here are the key provisions and how it could impact Indian IT.

The first killer provision in the Comprehensive Immigration Reform Bill is the ban on client site placement for H-1B workers.

Under this any H-1B dependent employer (a company with more than 15 percent of its workforce on H-1Bs), would be prohibited from placing H-1B workers at client sites or contracting for the services of those workers. Majority of IT services staff in the US is typically posted at customer sites. So this debarment would disrupt this arrangement and would mandate placing only local employees at client sites.

“Being on the client site is a necessity in most places?.?.?.?you might be able to open an office in New York, but they can’t do that in every remote town or city, an IT analyst was quoted as saying in this Financial Times report.

So, in its current form, the bill could imply market share shift away from Indian IT towards MNC IT.

“For companies which are not H-1B dependent, they are allowed to place H-1B resources on customer sites after paying a fine of $500 per person. So essentially, US-centric companies (Accenture and IBM) less dependent on visas and having offshore operations are likely to benefit from this move,” said Nomura in a research report today.

Moreover, the clients are likely to hold back given the likely disruption in servicing and risk associated with an Indian IT vendor if the bill is passed.

Also, a change in business model implies setting up of delivery centres near clients, near shoring of delivery, immediate hiring of locals to man projects etc. This increased offshoring could result in reduction in revenues and profitability, said Nomura.

Hence,the outcome of the outplacement debarment could mean companies would: 1) hire locals in lieu of H-1B visa staff; 2) offshore more; 3) lose some business to competition; and 4) shift staff at client locations to proximity centres.

Secondly, the bill proposes new restrictions on client site placement for L-1 workers.

As a result of this an Indian IT company would not be able to place L-1 workers (whether specialised or managerial) at client sites (the US company) unless the company supervised and controlled those workers and the parent US company attests that for 90 days before and after the L-1 petition filing it had not laid off any employees in the same area performing similar job duties.

Thirdly, the bill places limit on total percentage of H-1B and L-1 Workers

Under this, the immigration bill would impose a hard limit on the percentage of H-1B and L-1 workers that could make up a company’s workforce in the US.

Basically, from 2016 any company with more than half of its staff on such work permits will be forbidden from applying for more visas. This will create a cap on temporary immigrant staff.

Being enforced in three phases, the limits would be no more than 75 percent from October 1, 2014 to September 30, 2015; no more than 65 percent from October 1, 2015, to September 30, 2016, and no more than 50 percent from October 1, 2016 onwards. If these conditions are not met, the companies would not be able to apply for further visas (H-1B and L1).

The US India Business Council and Confederation of Indian Industry have already opposed such a move and said that this is against the spirit of India-US strategic relationship.

Increase in H-1B mandated salaries and increase in visa cost

Currently, H-1B visa salaries are mandated by USCIS, depending on the geographical area, skill or experience level that a person has, with which companies need to comply by paying at least the same or higher salaries. Th bill proposes to increase mandated salaries for H-1B visa holders to prevent H1B workers from undercutting wages paid to American workers.

Also, if a company has 30-50% of its people on H-1B or L1 visas, the bill proposes to charge $5,000 extra for additional people above the 30% norm. If, a company has more than 50% of its people on H-1B or L1 visas, the bill proposes to charge $10,000 extra for every additional person above the 50% norm.

According to Nomura, the cost impact of this is likely to reduce progressively because as companies become compliant with the 50% local requirement, extra visa fees would drop to $5000 against the $10000 earlier.

So what choice do Indian IT guys have?

Either to hire local organically or inorganically through more acquisitions. As of now, no Indian company has expressed any intent of going the inorganic way.