New H1-B Bill: Despite Vishal Sikka's hopes on Trump, Indian IT margins may take a hit

Right now, the IT margins are a good 20 percent or above; these may come down to 10 percent if the new Bill becomes a law, analysts say

Sulekha Nair January 13, 2017 15:38:13 IST
New H1-B Bill: Despite Vishal Sikka's hopes on Trump, Indian IT margins may take a hit

The Donald Trump administration which will take charge on 20 January in the US has announced that it will push for legislative measures to curb misuse of H1-B and L1 work visas significantly used by Indian IT professionals. In preparation, two lawmakers have already reintroduced a bill named Protect and Grow American Jobs Act. The move has raised fears that Indian IT firms may take hit if the Bill becomes a law.

The Bill, among other things, seeks to increase the minimum salary requirement for H1-B visa to $100,000 per annum from the present $60,000 and eliminate the Master’s degree exemption. The legislation, the lawmakers argued, will help crack down on abuse and ensure that these jobs remain available for the best and brightest talent from around the world.

What does this spell for the Indian IT industry? A Nasscom report says that the industry pays equal wages to US nationals as well as Indians on H1-B visas. For instance, in 2013, while a US citizen was paid about $81,447 a year, an H1-B visa holder was paid $81,022, with an additional $15,000 on visa and ticket costs for the individual and his spouse/family. US companies hire from India simply because a large number of job openings with requirement of STEM skills (science, technology, engineering and math) are not filled. The report states it is this talent shortage that makes the US companies hire from India.

India has not much to fear, said Shivendra Singh, Vice President, Global Trade Development, Nasscom. He said Indian IT industry in the US has created 411,000 indirect and direct jobs and has been paying $5 billion in taxes early. “Around 90 percent of H1-B visas is used by the top 7 Indian IT firms. In 2015, we got about 13 percent of the visa allocated which only goes to show that Indian companies do not take the majority of the visas issued,” he remarked.

Singh pointed that the data from the US Labour Department points out to a shortage of skilled professionals in the industry. According to December 2015 projections by the US Labor Department, employment of computer and information technology occupations will grow 12 percent from 2014 to 2024. Since there is a shortage of native STEM skill experts, as many 2.4 million STEM jobs in the US would not be filled by 2018. “The US will have to look at other countries to fill up these vacancies,” Singh said.

While announcing Infosys’s October-December 2016 results on Friday, Vishal Sikka, CEO was hopeful that policies of the Trump administration would be friendly toward business, innovation and entrepreneurship. Sikka pointed out that with president-elect Trump himself being an entrepreneur and ‘has a very business-friendly, innovation-oriented background.” He said the company has not seen any discernible pattern in client behaviour.

The US is highly dependent on Indian IT companies and it is wishful thinking, pointed out an analyst, for the US to alter drastically the functioning of Indian IT firms. However, that is not to say that no Indian IT firms will be impacted. Within the sector, those that require less specialised skills like the Business Process Outsourcing (BPO) units and call centre jobs can be affected. However, the high point is that better-skilled jobs including coding and maintenance are likely to remain unaffected given their scarce availability and exclusivity, a paper by Greyhound Research’s Sanchit Vir Gogia and Anshoo Nandwaani reveals.

However, clients are worried, said Sikka, adding that many had reached out as they were all trying to ‘figure out what this means’. “We are waiting and watching,” said Sikka at a press conference after announcing Infosys earnings.

New H1B Bill Despite Vishal Sikkas hopes on Trump Indian IT margins may take a hit

Representational image. Reuters

Visa rules
The H-1B visa is a non-immigrant visa that allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise in specialised fields. Under the H1-B visa programme, US-based companies hire highly skilled foreign workers, up to a maximum of 85,000 a year. Of these 65,000 are hired abroad and 20,000 from among foreign nationals studying in the US.

The H-1B visa program tends to be more critical to outsourcing firms than US tech firms, according to a Reuters report. For instance, more than 60 percent of the US employees of Infosys are H-1B holders, and the company in its annual report has cited an increase in visa costs as among factors that could hurt its profitability.

The top 10 recipients of H-1B visas in 2015 were all outsourcing firms, according to government data compiled by the IEEE-USA, a professional organization representing US engineer Sixty-five percent of H-1B petitions approved in the 2014 fiscal year went to tech workers, mostly from India, according to USCIS.

A number of companies – including Disney and SoCal Edison – had recenlty came under attack for abusing the programme.

Indo-US trade relations
Vishal Gondal, CEO, Goquii -- a California-based fitness technology venture said in a column in Tech2 that under Trump, Indian software companies who have been traditionally focused on software services will be forced to look at products and IP based solution. “This shift from services to product will benefit both startup ecosystems of America and India and many of these companies will be looking at investments and acquisitions.”

Gondal believes that the trade relations between India and US will strengthen leading to a powerful alliance owing to the geopolitical scenarios and rapid industrialisation in India.

However, there is no clarity on visa rules yet. Many experts believe that the $100,000 salary cap suggested may not come to be simply because that would be drastic. “It is just a political statement,” believes BS Murthy, CEO, Capital Leadership, an executive search firm based in Bangalore. “Trump cannot get back jobs that have gone to other nationalities, but since that was his poll promise he can only ask for more jobs for native Americans.” The jobs that are left vacant on account of lack of skill sets like STEM, for instance, can largely be filled only by Indians, says Murthy.

The gap in filling up jobs with native Americans will have to advertised. Since that is a lacuna that IT firms have been facing in the US for long now, they will have to continue to look overseas to fill up these vacancies. “You cannot hire a local simply to fill up a job when the candidate is not the best fit,” points out Kris Laxmikanth, Founder CEO and Managing Director, The Head Hunters India, Bangalore. He says that at Silicon Valley, a good software engineer is paid $100,000 annual salary and this goes up to $150,000 in three years. However, Laxmikanth says, that any change in visa rules would affect the industry and its margins. “Right now, the IT industry margins are very good at 20 percent plus and this could come down to 10 percent if the Trump administration passes rules that go against the robust growth of the Indian IT industry.

Never was it easy to get a visa to the US. So more ‘stringent’ rules is a misnomer, points out Dilkash Tasneem, head, global mobility and immigration, Thoughtworks India, which has a presence in 14 countries. “The rules have been stringent for some time now and the Bill was introduced last year by Senators Durbin and Grassley,” she says, adding that no Indian IT firm would be too bothered about the salary cap being raised, for instance, as the firms pay at par and often more than what the rules state.

Most US-based companies including many Fortune 500 firms are deeply invested and dependent on Indian IT service providers and neither they nor the Trump administration is in a postition to make drastic changes, says the Greyhound report.

It is a wait and watch game as of now for Indian IT firms. A campaign promise and a rule when in power is a different ball game, most aver.

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