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Change in H-1B visa rules to hit the Indian IT sector hard

Change in H-1B visa rules to hit the Indian IT sector hard

By DhrubaSattwata Roy Choudhury

The U.S. Citizenship and Immigration Services (USCIS) has decided to temporarily suspend the premium processing of all H-1B petitions. This has spurred a lot of speculation about the Trump administration’s plans for the visa program.

New system to protect American worker’s interests?

A legislation has been introduced in the US House of Representatives. This legislation, among other things, calls for increasing the minimum salary of H-1B visa holders to $130,000. This would make it difficult for firms to use the program to replace the American employees with foreign workers, including those from India.

The High-Skilled Integrity and Fairness Act of 2017, introduced by California Congressman Zoe Lofgren, prioritises market-based allocation of visas. He argues: “My legislation refocuses the H-1B program to its original intent — to seek out and find the best and brightest from around the world, and to supplement the US workforce with talented, highly-paid, and highly-skilled workers who help create jobs here in America, not replace them.”

The proposed legislation would eliminate the lottery system in favour of a ‘preference system’. This system was created by the USCIS to give priority to foreign students educated in the US. In doing so, it would aim to weed out foreign outsourcing firms, which are accused of exploiting the system. It would also require the employers to make a “good faith effort” to recruit American workers over foreigners. Apart from that, the employers would need to give the departments of Homeland Security and Labor more authority in investigating fraud and abuse.

By paying an additional premium of $1,225, companies could get an H-1B application processed within 15 days, whereas a standard process takes 3-6 months. The temporary suspension of the fast-track processing of the H-1B visas — widely used by the Indian IT industry — may last six months. Notably, the suspension is an internal decision of the USCIS and it does not respond to any policy change. However, due to the change in administration, there has been a preference for filing H-1B petitions under the premium route. 

Change of rules to hit the Indian IT Sector hard

According to NASSCOM, India’s software industry body: “The current issue of the temporary suspension of premium H1-B processing will create some process delays for the companies — Indian and American — but is not a significant impediment”.

The decision was announced just hours after the Foreign Secretary of India, S. Jaishankar, and the Commerce Secretary of India, Rita Teotia, engaged in diplomatic talks with US officials and lawmakers. They urged them to consider the H-1B visa particularly as a trade and services issue, and not an immigration one. The suspension also puts pressure on the Indian IT companies. Any changes in the visa regime result in higher operational costs and a shortage of skilled workers for the industry. There have been proposals to overhaul the popular H-1B visa regime through various legislations. These developments have only added to the woes of the Indian IT sector that is already struggling with slower growth, currency fluctuation, and cautious client spending. The US accounts for over 60% of the Indian IT export revenues.

The present reforms will force the Indian IT giants to make fundamental changes in their business and hiring strategies. It will include hiring more American workers and raising the salaries that they pay to the employees working on client sites in the US. This would reduce the comparative advantage they have over their American and Multinational competitors. Uncertainties surrounding visas are viewed negatively and may gradually become an inhibitor of growth for US-based customers. These customers look at this as more of a threat and tend to move their businesses to the US-based IT companies. It has been evaluated that these may result in eroding the operating margins by upto 300 basis points (100 basis points are equivalent to 1 percentage point).

Bypassing the H-1B Visa: Is automation the answer?

The IT giants can move towards an approach that allows them to work virtually. This is becoming increasingly easier with the wider adoption of cloud services and greater digitisation. This implies that fewer employees are required onsite. Indian IT giants have been pushing their American clients to adopt more virtual services, something that may be a game changer.

Infosys has stated that their AI platform is responsible for 5-6% of revenue, which has improved over the years. Indian IT companies are steering clear of labor-intensive projects and are venturing into more virtual needs like cloud computation, automation and AI. IT giants can accelerate the trend, reduce their reliance on human labour, and increase their focus on delivering automation and leveraging the cloud for their clients. 

Trump administration could regulate the number of visas and check immigration, but legislating against automation and bots will be tougher, if not impossible. This would only mean trouble for the US, an economy partly sustained by the ‘brain drain’ from rest of the world.


Featured Image Credits: New Images

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