This Article is From Apr 23, 2013

Why India's IT industry is worried over US' draft immigration policy

The US Senate immigration bill attempts to meet long-sought demands from America's technology sector for more high-skilled workers from abroad to fill the gap created by a shortage of American candidates.

Under the proposed legislation, the official quota of "H-1B" visas would increase by 69 per cent. However, the proposed overhaul has raised concerns in the Indian IT services sector as well as the government on certain clauses it deems as "discriminatory".

Ameet Nivsarkar, vice-president of global trade development at industry body Nasscom, told NDTV that the Government of India clearly sees this as a bilateral trade issue.

What the draft bill proposes
The immigration bill, the larger point of which is to boost border security and provide a path to citizenship for 11 million people living illegally in the US, would impose steep fees for Indian IT companies.

The H-1B is a non-immigrant visa in the US that allows US employers to temporarily employ foreign workers in specialty occupations. The duration of stay is three years, extendable to six years.

American technology companies are in favour raising the H-1B quota almost five-fold, to 300,000 from 65,000, arguing universities are just not turning out enough American math and science graduates and they need to cast their net abroad to stay competitive.

Under the proposed bipartisan legislation, the official quota of H-1B visas for high-skilled, foreign workers would increase by 69 per cent to 110,000.

The visa quota could go as high as 180,000 in future years from the current 65,000 limit, based on certain conditions, according to an outline of the bill.

How it affects Indian IT companies

Higher visa fees
Of the $108 billion software exports from the country, as much as $46 billion comes from the US alone and most of the domestic IT companies -- such as Tata Consultancy Services, Infosys and Wipro -- fall under this category. According to Nasscom, Indian IT companies contributed 6.4 per cent of India's GDP in 2012.

The bill specifies that if an employer has over 30 per cent but less than 50 per cent H-1B employees, it will need to pay a $5,000 visa fee per additional worker.

Employers with more than 50 per cent of workers on H-1B visas will have to pay a $10,000 fee per additional worker.

As such, domestic companies like TCS, Infosys and Wipro will have to pay $10,000 for each additional H-1B employee they would be hiring (According to Nasscom estimates, between 50 and 80 per cent of the total number of employees of these Indian IT companies are in the US on H-1B visas).

Higher wage bills
Although the official quota of H-1B visas will increase, businesses will need to pay these employees high salaries and ensure qualified American applicants are not passed over. This will mean the outsourcing companies may have to hire local applicants or increase wages of employees on American payrolls, significantly increasing their wage costs and hitting margins.

Alteration in business models
According to Mr. Nivsarkar, Indian IT companies may need to effect changes in their business models if the bill is passed in its current format.

The companies may have to recruit local talent in the US, go in for acquisitions, set up centres in the US, or even offshore a significantly larger portion of the work they do - all this could have a telling effect on their costs and margins.

While American companies also compete to obtain the foreign guest worker visas, most are not as dependent on the visas as Indian companies, industry representatives said. Still, it was an American company, New Jersey-based Cognizant Technology Solutions, which was the No. 1 user of the guest worker visas, with nearly 9,300 in 2012. Cognizant also has a significant workforce in India.

The US India Business Council and Confederation of Indian Industry have opposed the clauses and said that this is against the spirit of India-US strategic relationship.

The issue was also raised by the Union Finance Minister, P. Chidambaram, when he met the Treasury Secretary, Jack Lew, in Washington last week on the sidelines of the annual spring meeting of the International Monetary Fund and the World Bank.

Mr Chidambaram told Mr Lew that "temporary relocation of knowledge workers should not be confused with immigration".

India's ambassador to the US, Nirupama Rao, argued in USA Today that everyone benefits from a generous guest worker policy, with Indian tech firms also creating 50,000 jobs for American workers and consumers benefiting from cheaper technology.

"Some of the provisions are directionally negative for the Indian IT although there may not be an immediate impact for FY14 as such for any of the larger companies," Hitesh Shah of IDFC Securities told NDTV on a contrarian note. "We do not see a significant impact on the tier 1 IT stocks, but it (the bill) could lead to a slightly higher cost of doing business in the US. But the bill is not disastrous from any angle."

With inputs from agencies