A proclamation banning all non-immigrant visas including H-1B in the US is more than likely at the back of rising unemployment due to COVID-19. This is not a good news for Indian IT firms or the US tech industry.
For a prolonged ban will impact the talent supply chain and could potentially change the way the entire industry works, even in the post COVID-19 world.
What will the new proclamation change?
The new executive order, going by reports, will ban H-1B and other immigrant visa holders such as J1, H-2B and L1 from entering the US till October 1. However it is unlikely to impact those already in the US with valid visas.
This is important because Indians are one of the biggest beneficiaries of H-1B and L-1 visa in the US. There are about four lakh India H-1B holders and close to a lakh L-1 visa holders in the US.
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How will it impact the talent supply chain?
According to a recent report by Kotak Institutional Equities, likely suspension of H-1B and L-1 visas by the Trump administration beyond September could impact the talent supply chain for IT services and US technology firms.
Though the companies have been stepping up their localisation efforts, sudden ban will impact their ability to deliver projects and close deals due to talent crunch. This will also affect the US firms that employ significant Indian tech workers.
“The ripple effect is not on just the tech companies and consulting firms, it will actually impact federal to state governments to companies across the US that are relying on these H-1B workers to help engine their products,” said Sheela Murthy, founder, Murthy Law Firm.
In terms of IT firms such as TCS, Infosys, Wipro and Cognizant continue to be top H-1B employers and any set back will impact them.
Among the technology firms, Amazon, Google, Microsoft, Facebook, Apple and Intel are one of the top H-1B employers with an approval rate of more than 96 percent. Amazon, Microsoft and Google alone have close to 20,000 petitions approved in FY19, a report revealed. They are followed by Facebook and Apple at more than 7,000 approved visas.
How will it change the ecosystem going forward?
This would, in course of time, force companies to look at other operating models apart from onsite-offshore mix.
We are already seeing it happening. Most IT firms now have close to 60 percent of their workforce in the US as locals.
TCS, in its FY20 annual report, said that - with remote working becoming a norm - it was looking at lesser dependency on visa and travel as meetings move virtual.
Milind Lakkad, Chief Human Resources Officer - TCS, said in the report that - with teams working from home - in-person interactions were replaced with virtual collaboration and has made physical location irrelevant.
In addition, the last few years has seen the company bring down the use of work visas by stepping up its localisation efforts. The company had hired close to 20,000 employees in the last five years. For short-term projects, the company has been using subcontractors.
“All this has brought down our use of work visas to a small fraction of what it used to be five years ago, de-risking our business significantly,” Lakkad said.
This would mean that traveling to onsite locations, particularly for initial transitions and knowledge transfer, will further reduce in the coming years. Similar initiatives can be seen from other organisations as well.
As for the US tech firms, analysts whom Moneycontrol spoke to pointed out that companies would rather set up shops in places like India rather than going through the onerous H-1B process in the future. India is already one of the largest captive centres for the overseas companies and this would be a huge opportunity for India. Captives employ about eight lakh people in India.
However, stringent measures could put backfire on the US. Murthy from Murthy Law Firm stated it would hurt the US economy. Reports suggest that an increase in H-1B visas could create an estimated 1.3 million new jobs and add around $158 billion to US GDP by 2045.
With less job prospects It would also make the US less desirable for higher education among Indians, who are one of the largest student diaspora in the US. There are about two lakh students studying in the US.
These students spend close to Rs 50 lakh to study in the US and without a job guarantee, not many can afford this.