Home / Market / Mark-to-market /  H1B visa: IT investors may as well say goodbye to recovery in FY18

After a lull for a couple of months, when the rhetoric against the H1B visa programme had diminished, the US government has changed guidelines for visa processing. The new guidelines will increase costs for Indian information technology (IT) companies and are likely to create other hurdles as well, which may hit growth in the coming year.

A key observation in the policy memorandum issued by the US Citizenship and Immigration Services (USCIS) agency is that “an entry-level computer programmer position would not generally qualify as a position in a specialty occupation".

Analysts at Nomura Research point out that 40-60% of labour condition applications (LCAs) filed by Indian IT firms were in the entry-level or Level 1 category last year. LCA filings are a pre-requisite for H1B visa applications. Nomura’s findings are based on data provided by Foreign Labor Certification (FLC) Data Center for the period October 2105 till September 2016. The chart above has details of LCA filings by top IT outsourcing companies.

Also Read: H1B visa curbs: US Labour Department announces steps to protect local workers

Indian IT companies have been saying that their visa applications have reduced in recent years, and more so in the low-experience categories. But data till September 2016 suggests otherwise. Perhaps companies made a shift in strategy from last year onwards.

But whether it was done from last year or will start this year, Indian IT firms would have to step up hiring of locals with respect to entry-level programmers. In cases where the required person has more experience/expertise, but was earlier categorized as Level 1, companies would have no choice but to use the Level 2 or a higher category henceforth.

In both cases, costs will increase. “Each level change implies a 20-25% bump up in salaries, and this could have negative margin implications for Indian IT," Nomura’s analysts said in a note to clients. With the hiring of locals, Indian companies will lose the flexibility of being able to call back an employee at the completion of a project. As such, utilization levels of its on-site employees will drop.

Most analysts had come to the conclusion that costs related to on-site services will rise as a result of the change in the government’s stance towards H1B visas. In that backdrop, the policy memorandum from USCIS doesn’t come as a huge surprise.

But also note that the US government had earlier decided to do away with premium processing of H1B visas for a period of up to six months. This can increase the time taken to process visa applications. What’s more, since Donald Trump took over as president, three bills have been introduced seeking to curb the use of H1B visas.

Also Read: H1-B visa: What the USCIS guidelines mean for tech workers and companies

The recent policy changes as well as the possibility of further changes can result in uncertainty among clients. Some of them may have concerns about the ability of their outsourcing partners to deliver projects in a timely manner, and might look to firms such as Accenture Plc or International Business Machines Corp., which are far less dependent on H1B visas. Some of them may even decide to insource some of their needs.

Nomura’s analysts say, “We view the immigration tightening being seen in the UK, the US and Singapore as negative for Indian IT, both from a margin and a near-term growth perspective, given the uncertainty."

Some analysts and investors have been expecting growth of the industry to pick up this year. This is based on signs of a recovery in growth in the US as well as the fact that some of the headwinds the industry faced last year—such as an increase in outsourcing to captive units—have abated this year. But thanks to the visa troubles, these hopes may be belied.

In fiscal year 2017, growth was dismal and in single digits, and this year is likely to be little different.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout