How Trump’s $100,000 H-1B fee threatens $35 billion in Indian remittances; Rupee braces for impact

Economists predict that President Donald Trump’s sharp increase in H-1B visa fees is likely to impact India’s services sector, reduce remittance inflows, and put pressure on the rupee.

Trump on Friday signed the proclamation ‘Restriction on entry of certain nonimmigrant workers’ that restricts the entry into the US of those workers whose H1B petitions are not accompanied or supplemented by a payment of USD 100,000.

“The H-1B nonimmigrant visa programme was created to bring temporary workers into the United States to perform additive, high-skilled functions, but it has been deliberately exploited to replace, rather than supplement, American workers with lower-paid, lower-skilled labour,” Trump said in the proclamation.

India is especially vulnerable to these changes, as roughly 70% of H-1B visa holders in the US are Indian — many employed through Indian IT firms.

What the heavy fee can impact remittance and the Rupee?

Citigroup Inc. economists, including India economist Samiran Chakraborty, estimated, highly skilled Indian professionals working abroad are a key source of remittances, consistently sending growing amounts back home. The US alone provides nearly 28% of these inflows — roughly $35 billion a year, .

“As the number of H-1B visa holders from India declines in future years, this will reduce the remittances back to India,” JP Morgan analyst Toshi Jain wrote in a client note. In a worst case scenario, if Indians applying for H-1B visas fell to zero, the annual remittances would decline by about $400 million, Jain added.

The potential dent in remittances could put further pressure on the rupee, which has already been among Asia’s worst performers. The currency slipped 0.1% to 88.20 per dollar in early Monday trading.

How it is likely to impact the tech sector?

Economists also warned that the visa changes could disrupt India’s $280 billion IT services industry, which depends on the H-1B program to deploy engineers to overseas clients.

On Monday, Indian tech stocks declined on the speculations that the hefty fee for new H-1B visas may lead to operational difficulties for outsourcing giants. TCS shares fell as much as 3.4%, the most in more than two months, while those of Infosys slipped 3.9%. Tech Mahindra Ltd. declined 6.5%. Most stocks pared their declines later.

The IT sector contributed over 7% to India’s gross domestic product and employs nearly six million professionals globally, according to National Association of Software and Service Companies, based in Bengaluru.

The visa overhaul adds to tensions in India-US ties, as New Delhi grapples with the impact of 50% tariffs recently levied by Washington. India’s Commerce and Industry Minister Piyush Goyal is in the US this week to resolve differences and move forward on a trade deal.

Trump’s policies “increase medium-term growth risks” for the South Asian economy, and add pressure on the government to boost domestic demand, said Sonal Varma, economist at Nomura Holdings Inc.

While Trump aims to protect US jobs by restricting immigrant inflows, the new rules could backfire: they will likely raise costs for American corporations and push them to step up the expansion of their so-called global capability centers in India. Companies including Microsoft Corp., Google and Morgan Stanley already run large GCCs in India.

Such an expansion, combined with reduced education outflows if fewer Indian students choose to study abroad, could help offset the economic drag from slower remittance growth, Citigroup said. Its economists also estimate that most of India’s remittance inflows come from Indians holding other types of visas or residency status.

“All told, the impact on the Balance of Payments is expected to be modest in the near term,” said JP Morgan’s Jain. “The bigger concern is what this does to trade negotiations and whether it is a harbinger of future pressures on offshoring.”

(With inputs from Bloomberg)