Changes in Immigration law in US - Implications on India

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US Immigration reforms are expected to become more contentious. Donald Trump is living up to his agendum as promised during his campaign advertising. The President has already banned refugees and travellers from seven predominantly Muslim countries.

What is H1B visa?

The H1B visa is an employment-based, non-immigrant visa category for temporary workers. This approved petition is a work permit which allows obtaining a visa stamp and working in the U.S. for that employer. 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.

Latest Developments

A draft legislation indicating an increase in the minimum salary of H1B visa holders from $65,000 to $130,000 and limit of proportion of H-1B and L-1 visa workers that can be employed by a firm, such that it may not allow companies to hire additional H-1B or L-1 employees if the number of such employees exceeds 50% of the total number of employees, is under discussion.

The principle for such reform is to make it difficult for companies to replace US employees with foreign workers. These measures if implemented will have a direct bearing on India’s Software Service Industry.

Indian Software Industry in US

Tata Consultancy Services (TCS), Infosys Ltd and Wipro Ltd are some of the companies which would largely be impacted. Currently, the average annual wage for a TCS employee on a H1B visa is $69,658, according to the note. It’s higher for Infosys at $79,176. 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/ cheaper IT workers into the US.

Impact on Indian IT Companies

Negatives:

When news came in for above developments, stocks of Indian software exporters plunged, TCS’s shares fell 4.47%, Infosys’s declined 2% and Wipro’s 1.62%.

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.

Exports dominate the Indian IT Industry and constitute about 77% of total industry revenue. India exports software services to more than 60 countries, with two-thirds to the United States. Expert analysts have pointed that operating margin will reduce by as much as 3 percentage points.

If there is a curb on hiring Indian nationals stateside because of reforms to the H-1B program, it could also affect remittances from the U.S., World Bank data showed the U.S. was the second largest source of remittance for India in 2015, behind Saudi Arabia, and about $10.96 billion - nearly 16 percent of the total inflows - was sent to India.

Positives:

Instead of hiring US nationals up to $100,000 an annum and Indians above this amount, US companies would prefer relocating their units to India. Thus, “Make in India” will get boost. Employment opportunities within India will increase.

The best and the brightest Indians who are selected by US companies are promising, forward looking and have the capacity to bring positive change. They not only serve in US, but also work on their own start-ups. If they come to India, after having enriched with overseas experience, they will have capabilities to make India Shining.

Opinions:

“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.

“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.

“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.

"Immigration restrictions are the main source of India's vulnerability," said Sonal Varma, chief India economist at Nomura, in a note. "The viability of the off shoring model of Indian software firms would be at risk."