A new bill clamping down on US visas could have major ramifications for India’s IT sector and lead to wider trade protectionism, write Keshab Das and Hastimal Sagara.
Earlier this year, the H1B and L1 Visa Reform Act 2017 was introduced in the US House of Representatives. The proposed law seeks to better regulate American companies engaging foreign skilled workers through the H1B visa – a visa which lets US companies temporarily employ foreign workers in speciality occupations. The stated aim of this policy initiative is to reduce fraud and abuse while protecting and creating job opportunities for American workers.
Even though the bill is yet to become law, it has sent shockwaves through the Indian IT sector, two-thirds of whose business draws upon American companies, and which employs some 3.7 million people. In fact in 2016, Indians – largely IT professionals – received about 70 per cent of H1B visas.
For Indian IT companies, an immediate impact of the US change has been to cut down on recruiting young professionals. As the bill also proposes to increase average salaries from US $60,000 to US $130,000, several Indian companies may be forced to hire local Americans at higher wages.
The change is also likely to encourage American companies to engage foreign professionals through non-H1B visa routes and pay lower wages – an outcome that would not only be discriminatory but nullify the larger goal of creating jobs for Americans.
In addition to the immediate impact it is having on the Indian IT sector, for the moment, the new immigration policy appears both dicey and ambiguous for America.
The news of layoffs of more than 6000 Indian employees by the IT software major Cognizant has been followed by apprehension of large scale job loss at other big IT companies. As the Indian daily Hindustan Times reported, “America’s growing protectionism is making offshore business difficult. Clients want a higher degree of automation, and digital services have already started contributing to 20 per cent of IT services’ revenue.”
The National Association of Software and Services Companies – a peak trade association of Indian IT companies – has expressed its concern over the Bill, highlighting that it would not only reduce access to visas but raise their costs and increase procedural formalities. The trade body is also worried that there would be restrictions on employees working on American customer sites. The number of visa applications to the USA from India has already fallen by 37,000 from 236,000 to 199,000 in 2017.
Meanwhile, the Indian IT industry is hoping to “reinvent” itself by focusing less on ‘services’ and more on ‘technology products’ and by moving more into healthcare, manufacturing, and retail sectors. At the same time, major IT companies are proposing a variety of strategies to downsize their workforce, including retrenching workers, lowering remuneration and even ‘uberisation’.
This sense of siege within the US $150 billion Indian IT sector reflects its mid-life crisis and the fact that it faces urgent challenges across a number of critical areas.
First, despite several policy thrusts, the electronic hardware segment has remained a laggard. This single disadvantage could jeopardise India’s enviable position in software globally, sooner rather than later.
Second, the performance of the Indian IT sector in research and development in emerging disruptive technologies like the Internet of things, cloud computing, and big data, has not been impressive.
Third, the sector has been over-dependent upon a few foreign buyers, mainly in the US, and has not explored possibilities in other countries. The restrictions proposed by the H-1B and L-1 Visa Reforms Act 2017 would be extremely harmful for the prospects of India’s US $108 billion IT exports maintaining growth at around 12-14 per cent annually. If this growth were to slow, the economies of “cyber cities” like Bengaluru, Chennai, Mumbai, Hyderabad, Delhi and Pune would suffer terribly.
The immigration restrictions proposed by the Bill will also make it difficult for American companies to remain globally competitive, as the benefits of outsourcing their business processes to talented IT workers in India would be severely curtailed.
America would do well to remember – particularly when automation and robotics are fast transforming the world of science – that immigrants have historically made an overwhelming contribution to its technological development.
At its core, the Bill contradicts the United States’ longstanding policy on free trade and nondiscrimination in business and might induce other national governments to adopt similar conservative policy approaches of protection.