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Business News/ Industry / Infotech/  What H1B visa reforms mean for Indian IT companies
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What H1B visa reforms mean for Indian IT companies

US visa reforms may force Indian IT companies, which depend on H1B visas for recruitments, to make fundamental changes to business strategies

The H1B visa reforms may force Indian IT companies, such as TCS, Infosys and Wipro, to shift work offshore or other near-shore centres or subcontract to US firms, while accelerating automation, say analysts. Photo: Abhijit Bhatlekar/MintPremium
The H1B visa reforms may force Indian IT companies, such as TCS, Infosys and Wipro, to shift work offshore or other near-shore centres or subcontract to US firms, while accelerating automation, say analysts. Photo: Abhijit Bhatlekar/Mint

Mumbai: India’s software services industry, already facing pressures on profitability and revenue, has become the latest target of the Trump administration’s moves to protect American jobs.

The US administration said on Monday it had drafted an executive order to overhaul the H1B work-visa programme that software services firms based in India use to send skilled workers to the US.

Alongside, a draft legislation, which among other things, calls for more than doubling the minimum salary of H1B visa holders to $130,000, was introduced in the US House of Representatives. The draft bill aims to make it difficult to replace US employees with foreign workers and experts say it is likely to deal a body blow to companies such as Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd in its present shape.

ALSO READ | H1B visa reform bill introduced in US, minimum pay doubled to $130,000

If implemented, the reforms may force TCS, Infosys and Wipro to make fundamental changes in their business strategies, including hiring more American workers and raising salaries they pay to employees working on client sites in the US—moves that analysts say will erode operating margins by as much as 3 percentage points.

“It is an adverse development, but I suspect the minimum wage limit will not rise beyond $100,000. There will be strong lobbying to curb it at that level," said Apurva Prasad, a research analyst at HDFC Securities.

“Assuming the minimum wage is fixed at $100,000, the tier–I Indian IT companies could take a hit of around 150-300 bps on their operating margins." A basis point is a hundredth of a percentage point.

The draft legislation also proposes to reserve 20% of the H1B visas allocated annually for firms that have 50 or fewer employees.

Stocks of Indian software exporters plunged on Tuesday. TCS’s shares fell 4.47%, Infosys’s declined 2% and Wipro’s 1.62%.

ALSO READ | The message from H1B visa reforms

An increase in minimum annual wage to $110,000 for H1B workers may hurt TCS’s gross margin by 230 basis points and Infosys’s by 170 bps, according to a December note prepared by Investec Securities. The average annual wage for a TCS employee on a H1B visa is $69,658, according to the note. It’s higher for Infosy at $79,176.

The contentious H1B visas are given to foreign nationals in “specialty" occupations that generally require higher education, who according to the US government rules include engineers, computer programmers and scientists. The government awards 65,000 such visas to foreigners every year.

TCS declined to comment on the development. Infosys and Wipro didn’t immediately respond to a request for comment.

While tech firms claim they use the H1B visas to hire highly skilled workers in areas that lack top talent, the fact that a majority of the visas are awarded to outsourcing firms from India has drawn criticism from US politicians, who claim companies such as TCS and Infosys misuse the work visa programme to bring low-level IT workers into the US.

Around 70% of H1B visas were given to workers from India, The New York Times reported in November 2015, citing the US Department of Homeland Security.

ALSO READ | H1B visas: Business as usual after short-term flap

“If skills aren’t available in the US and per law you can’t bring workers in then either the job will remain undone or the job will be shifted to India or some other location outside the US," R. Chandrasekhar, president of software industry lobby group Nasscom, said in a phone interview. “It will also be a big loss to the US since outsourcing jobs creates jobs directly and indirectly for the US economy."

Firms such as TCS and Infosys may have to use the next few months to devise strategies to deal with the new developments, analysts say. “It may take a while for the bill to pass. Until then, they have the time to devise their strategy to deal with this," said Sarabjit Kour Nangra, vice-president of research-IT at Angel Broking.

One of the options, says Prasad of HDFC Securities, is to shift work offshore or other near-shore centres or even subcontracting to US firms. Automation of work can also be accelerated, he added.

The prevailing protectionist sentiment will lead to a sharp rise in on-shoring and near-shoring arrangements, said Sanchit Gogia, chief analyst and chief executive of Greyhound Research. “However, it is critical to remember that these cannot be built overnight."

Indian foreign ministry spokesman Vikas Swarup said the nation’s “interests and concerns have been conveyed to the US administration and the US Congress at senior levels".

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Published: 01 Feb 2017, 01:41 AM IST
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