Trump administration has drafted an executive order aimed at examining the current work-visa programmes, including the H-1B visa. The amendments to the visa norms, in line with Trump‘s 'America First' strategy, threaten the IT sector jobs outsourced to Indians.
The tussle between Donald Trump and Silicon Valley is not likely to settle any time soon as new President of the US plans to live up to his populist promises.
In his attempt to 'Make America Great Again', Trump aims to roll out protectionist reforms that aim to bring jobs outsourced by American companies to come back to the homeland.
Trump administration has drafted an executive order aimed at examining the current work-visa programmes, including the H-1B visa. The amendments to the visa norms, in line with Trump’s 'America First' strategy, threaten the IT sector jobs outsourced to Indians.
Despite the move coming under fire, the new President has stuck to his guns.
Where was all the outrage from Democrats and the opposition party (the media) when our jobs were fleeing our country?
— Donald J. Trump (@realDonaldTrump) January 30, 2017
The draft that was leaked and published by news agencies yesterday, seeks the administration to "consider ways to make the process of allocating visas more efficient and ensure that beneficiaries of the programmes are the best and the brightest."
In a news conference yesterday White House Press Secretary Sean Spicer said: "I think with respect to H1Bs and other visa is part of a larger immigration reform effort that the President will continue to talk about through executive order and through working with Congress."
Following this leak, it was later announced today that a legislation was introduced the US House of Representatives which among other things calls for more increasing the minimum salary of H-1B visa holders to USD 130,000.
Here is a primer explaining the H-1B visa, the proposed amendments to it and the impact it will have on Indian IT companies.
What is a H-1B visa?
The US H-1B visa is a non-immigrant visa that allows US companies to employ graduate level workers in specialty occupations that require theoretical or technical expertise in specialized fields such as in IT, finance, accounting, architecture, engineering, mathematics, science, medicine, etc.
What amendments are sought?
- Doubling the minimum salary of H-1B visa holders to USD 130,000.
-This has been proposed under the High-Skilled Integrity and Fairness Act of 2017 introduced by California Congressman Zoe Lofgren.
-During ex-President, Barack Obama's regime, the Protect and Grow American Jobs Act had proposed to raise the minimum salary of H1B visa aspirants to USD 100,000 per annum from the current USD 60,000.
-Besides, the proposed US immigration reforms seeks to make a Masters degree mandatory for H-1B visa holders.
-The executive order the came out yesterday also asks the Secretaries of Labour and Homeland Security to restore the integrity of employment-based non-immigrant worker programmes and better protect US and foreign workers affected by these programmes.
What will be the impact on India IT companies?
“An increase in H-1B salaries to the mooted USD 100,000 levels could lead to significantly higher costs for the industry. Given the competitive nature of the sector currently, we see a risk that these higher costs may not be fully passed on to end clients, leading to vendors absorbing a significant extent of the impact. Over time, we could see increasing adoption of offshore resources and automation,” Citi had earlier said in a note.
Now that the salaries will probably be increased to USD 130,000 and if this Bill does become a law, it will significantly raise costs for Indian IT companies deploying their staff overseas and force them to do more local hiring.
Indians with H-1B and L-1 visas contribute USD 1 billion annually to the US, according to NASSCOM estimates. Indian IT industry contributes to about 4 lakh direct and indirect jobs in the US , contributing for about USD 5 billion in taxes annually. Nearly 60 percent, or about 65,000, of the total H-1B visas are issued to Indian contingent, mostly in the IT sector.
If the reform goes through, the resultant increase in employee wages will be a cost worry for the IT industry, but Tech Mahindra doesn’t see it as a disaster to be overly concerned, Tech Mahindra Vice-Chairman Vineet Nayyar had earlier said.
Reacting to the news Jagdish Mittal, Head of Strategy and Marketing, Tech Mahindra said that this legislative action won't have the kind of impact people are speculating.
Speaking to CNBC-TV18 he said that for the skill set for which Tech Mahindra hires in the market, the price points are in-line to the one proposed and are similar, stable.
He said that there won't be a huge impact on the company's margin as it has a well diversified portfolio in North America.
On the plausible impact on the Indian IT space, he said that the industry has moved significantly from just delivering skills to solutions and feels that the panic rising due to this development is unnecessary.
Immediate impact on IT stocks
Post this newsbreak, IT stocks took a beating in Tuesday's trading session with the NSE IT index falling by 2.83 percent at 2.00 pm.
Tata Consultancy Services, Infosys, Wipro and Tech Mahindra were all saw a steep fall of around 4 percent to 9 percent each.
There are 16,553 H-1B employees sponsored by TCS and 33,289 by Infosys. The hike to USD 130,000 will thus add nearly USD 1 billion and USD 1.69 billion in incremental costs for TCS and Infosys respectively, per annum.
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