How the $100K H1-B visa fee will hurt US-India ties—and companies

The announcement shocked companies and sparked a wave of confusion. Commerce Secretary Howard Lutnick initially suggested the fine would be annual and apply to current visa holders, panicking global companies. The White House on Saturday clarified that the fee wouldn’t apply to existing visa holders, would be one-time in nature, and wouldn’t start until 2026. Shares of Indian technology stocks fell on Monday.

Proponents of the H1-B visa, issued via a lottery, say it is critical to fill the gap for high-skilled jobs to keep the U.S. on the cutting-edge of innovation. Critics say it undercuts U.S. workers. The three biggest corporate users of the visa are Amazon.com, Tata Consultancy Services, and Microsoft, according to U.S. Citizen & Immigration Services.

The National Association of Software and Services Companies said the delayed start would give companies time to step up programs to train workers in the U.S. and enhance local hiring. Indian and India-centric companies in the U.S. have already reduced reliance on the H-1B visas, according to the trade group, from 14,792 visas issued to these companies in 2015 to 10,162 in 2024.Roughly 30% of their current U.S.-based staff of major IT Indian companies are on these visas, according to a client note from TD Cowen analyst Brian Bergin. For Indian or Indian-centric technology services companies like Tata, Infosys, and Cognizant that rely heavily on such visas, the change marks the latest in a string of challenges for their business prospects, including the adoption of generative AI, tariffs, and broader uncertainty that has pushed companies to pause spending.

Anuj Aggarwal, assistant portfolio manager of Baron Emerging Markets Fund and manager of Baron India Fund, expects the fee to be a mid-single-digit hit to profitability for Indian IT service companies in the near term. Aggarwal says that eventually the higher fee could be split between the company and the employee, who would get a lower wage, minimizing the impact.

That said, Aggarwal says he has been underweight these companies because of their other challenges. The fee just adds to the pressure.

The IT service industry accounts for an estimated 7% to 10% of the Indian economy but supports a significant proportion of its upper-class consumer, a major driver of growth, says Nick Niziolek, co-chief investment officer at Calamos.

Investors have been upbeat about India’s longer-term economic prospects, and it has been a favorite among global investors. But Niziolek says he is closely watching what impact the IT sector’s issues have on the broader economy.

Baron’s Aggarwal sees the possibility that the fee actually helps if it pushes global companies to invest more into the capability centers they have built in India and hire more workers locally. The visa change probably won’t reduce remittances from Indians in the U.S., as the policy shift doesn’t shrink the number of applicants for visas. It instead leads to a reallocation such that visas go increasingly to higher earners such as a sought-after scientist from Carnegie Mellon making $300,000 at a tech firm over a run-of-the-mill tech worker making less than half that.

Policy watchers are more concerned about the impact on the U.S.-India relationship, already under strain after the U.S. hit India with 50% tariffs, including a 25% penalty for its purchase of Russian oil. Indian nationals are the biggest recipients of H1-B visas.

“This has to be a step backward [in repairing the relationship]," says Christopher Smart, managing partner at investment strategy consultancy Arbroath Group, who noted the way the policy was rolled out. “It was almost like Liberation Day, where there were shocking headlines that were then walked back. [It] creates uncertainty around how and why you want to do business in the U.S."

The move may be another reason companies look to increase investment elsewhere in Singapore or Toronto, Smart said.

Skilled talent mobility and exchanges “have contributed enormously" to technology development, innovation, economic growth, competitiveness, and wealth creation in the U.S., India’s Ministry of External Affairs said. It also noted that the move could cause disruptions to families, something the government hopes can be “addressed suitably" by the U.S. authorities.

India and the U.S. have for about a decade been trying to strengthen their relationship, especially as the U.S. looks for a counter to its growing rivalry with China. However, the U.S. imposed 50% tariffs on India, making it one of the hardest hit. That included a 25% penalty for its purchases of Russian oil, even as the U.S. spared China, a bigger buyer of Russian oil.

Indian trade negotiators are back in the U.S. this week in hopes of getting those tariffs reduced. While India may want the U.S. to put in some efforts to mitigate the impact from the visa changes—and companies may find ways to carve out exemptions—the team is laser-focused on trade and is unlikely to want to add too many other elements to the trade discussion.

Write to Reshma Kapadia at reshma.kapadia@barrons.com