How the US ban on H-1B visas is affecting India's export of skilled IT workforce

The move could lead to increased costs for IT firms and US companies, which traditionally rely on skilled labour to power their operations

A temporary ban on H-1B visas, used by thousands of skilled IT workers travelling to work in the US, is expected to affect both India and US companies. Alamy

President Donald Trump's temporary ban on visas widely used by the Indian IT sector to send employees to the US has come as another blow to an industry expected to see slower growth this year amid the Covid-19 pandemic.

The US said last week it will ban certain work visas, including the H-1B non-immigrant visas that Indian IT companies rely on, until the end of the year. The move comes as the Trump administration looks to boost employment opportunities for Americans as the country tries to recover from a coronavirus-induced slowdown.

Of the 85,000 H-1B visas issued to skilled workers globally, Indians receive more than 70 per cent. The demand is fuelled by the Indian tech giants such as Wipro and Infosys, which send employees to their clients in the US. These employees can also be hired more cheaply than Americans, analysts say.

“The H-1B matter will surely impact the Indian IT sector,” says Raja Lahiri, a partner at Grant Thornton India. The move only applies to new visas rather than existing visas, but this means “if there is an additional requirement for people to do onsite work, that will get impacted”, he explains.

The H-1B matter will surely impact the Indian IT sector

This could cause delays to projects or increase costs for IT firms, which are feeling the effects of the pandemic, industry insiders say.

Covid-19 has affected the flow of new business and prompted clients to renegotiate contracts as business dipped amid lockdowns.

Crisil Research, part of Standard & Poor's, is forecasting revenue growth of India's IT sector will hit a decade low of 0 to 2 per cent this year.

Software giants Infosys and Wipro have refrained from issuing forward guidance because of the uncertainty.

The latest move by the US government, although partly expected,will further hurt IT companies' margins as they are no longer able to send staff to work on site in the US.

US companies that depend on the H-1B visas to hire Indian employees will be affected too. The heads of Google, Apple, and Tesla, among others, all openly expressed their opposition to the decision.

“Immigration has contributed immensely to America’s economic success, making it a global leader in tech, and also Google the company it is today,” chief executive Sundar Pichai wrote on Twitter. “Disappointed by [the] proclamation – we’ll continue to stand with immigrants and work to expand opportunity for all.”

India's IT industry lobby group Nasscom says Mr Trump's decision “is misguided and harmful to the US economy”.

The Indian government  was trying to persuade Washington not to go ahead with any move that would restrict Indian professionals' entry into the US.

“The US has always welcomed talent and we hope our professionals will continue to be welcomed in the US in future,” said Anurag Srivastava, India's ministry of external affairs spokesman, on Thursday. “We are assessing the impact of the order on Indian nationals and industry.”

However, experts also say the impact might not be as significant as expected, mainly because of the current restrictions on travel.

“This year, given the pandemic, international travel would be restricted,” says Mr Lahiri. “Therefore, the number of people travelling to the US would be impacted, so even if someone had a visa, the chances of someone travelling would have been an issue.”

He says “the bigger question is what happens to people who have the visas, whose visa expires, or is about to expire, those who have applied for renewal. What happens to those transitionary people?”

Although the latest directive is only supposed to apply to new visas, there are concerns that renewals of H-1B visas could be hit as well.

Rishit Parikh, a research analyst at Japanese investment bank Nomura, says “the executive order calls for higher scrutiny even in renewals to ensure no American jobs are displaced”.

The temporary ban comes following moves by President Trump to reduce immigration into the US. Known for his “America First” and “Buy American, Hire American” slogans, he has lobbied to reform the H-1B visas, in the hope it would translate to more jobs for Americans. Subsequently, it had become tougher over the past few years to secure the visas.

“We have already seen a sharp increase in rejection rates for both new visas and renewals over the past five years,” says Mr Parikh.

Nomura's figures show that rejection rates for India IT employees increased to about 44 per cent in the year to March 2020 from about 6 per cent in the financial year to March 2016 for new visa applications. For visa renewals, rejections rose to 21 per cent from about 4 per cent over the same period.

“Any further increase in rejection rates could lead to companies sourcing talent through subcontractors and a further increase in localisation as talent availability is less likely to be an issue in the near term given the increase in unemployment rates in the US,” says Mr Parikh.

But this could lead to an increase in costs for IT firms since American employees are about 20 to 25 per cent more expensive compared to skilled migrant Indian employees, he adds.

Higher visa rejection rates in the US also saw Indian firms take steps to reduce their dependence on the visas.

Many have increasingly hired locally over the past two years, leading to 60 to 70 per cent localisation at the top four Indian IT companies, Mr Parikh says.

As the pandemic spread, the IT sector moved its operations to a remote working model. IT industry analysts say this could prompt more operations, including in the US, to be moved offshore to locations including India - rather than bringing people in to work on site in offices in the US. The visas not currently being available could accelerate the process.

The pandemic has reiterated the importance of digital

“This news comes at a time when work from home is going to be the new normal for the foreseeable future,” says Srividya Kannan, the founder and director of Avaali Solutions, an IT consultancy based in Bangalore, the country's IT hub, often referred to as India's answer to Silicon Valley. “As enterprises are getting acclimatised to this way of working, this will only increase the offshoring opportunities for Indian IT companies. On the other end, customers will immensely benefit from further cost reductions resulting from offshoring to a lower cost destination."

Ms Kannan says IT firms in India will move to capitalise on this opportunity, at a time when the pandemic is hurting revenues.

“IT companies will make changes to their structure both on the operational and commercial side to turn this to their advantage.”

Diwakar Nigam, the managing director of Newgen Software, headquartered in Delhi, says the company is already used to working remotely for its clients in the US.

“We support our clients remotely from India and over 90 per cent of our workforce has been enabled to work safely from distributed locations,” he says. “We have sales and marketing offices in the US as well which hire locally.”

The company has adapted to the “new normal” he says.

“We are currently going live with new projects, capturing client requirements remotely, and conducting demos online,” says Mr Nigam.

He remains hopeful that the pandemic  will create new opportunities for Indian IT firms, as companies look to increase their digital infrastructure, which could help the industry quickly bounce back from the hurdles it is currently facing.

“The pandemic has reiterated the importance of digital,” he adds.