Trump’s H-1B fee hike poses risk to India’s remittances, rupee

Highly skilled Indian migrants in wealthy nations are a vital source of cash for the country, steadily increasing the money they send home over the years. Bloomberg

US President Donald Trump’s steep hike in H-1B visa fees could hurt India’s services sector, curb remittance inflows, and weigh on the rupee, economists said.

Last week, Trump ordered a sweeping overhaul of the H-1B visa program, mandating a $100,000 application fee aimed at deterring excessive use. India is especially vulnerable to these changes, as roughly 70% of H-1B visa holders in the US are Indian — many employed through Indian IT firms.

Highly skilled Indian migrants in wealthy nations are a vital source of cash for the country, steadily increasing the money they send home over the years. The US alone provides nearly 28% of these inflows — roughly $35 billion a year, Citigroup Inc. economists, including India economist Samiran Chakraborty, estimated.

“As the number of H-1B visa holders from India declines in future years, this will reduce the remittances back to India,” JP Morgan analyst Toshi Jain wrote in a client note. In a worst case scenario, if Indians applying for H-1B visas fell to zero, the annual remittances would decline by about $400 million, Jain added.

The potential dent in remittances could put further pressure on the rupee, which has already been among Asia’s worst performers. The currency slipped 0.1% to 88.20 per dollar in early Monday trading.

Economists also warned that the visa changes could disrupt India’s $280 billion IT services industry, which depends on the H-1B program to deploy engineers to overseas clients. Stocks of leading outsourcers, including Tata Consultancy Services Ltd. and Infosys Ltd., slid over 3% on Monday amid concerns the fee hike will complicate operations.

The IT sector contributed over 7% to India’s gross domestic product and employs nearly six million professionals globally, according to National Association of Software and Service Companies, based in Bengaluru.

The visa overhaul adds to tensions in India-US ties, as New Delhi grapples with the impact of 50% tariffs recently levied by Washington. India’s Commerce and Industry Minister Piyush Goyal is in the US this week to resolve differences and move forward on a trade deal.

Trump’s policies “increase medium-term growth risks” for the South Asian economy, and add pressure on the government to boost domestic demand, said Sonal Varma, economist at Nomura Holdings Inc.

While Trump aims to protect US jobs by restricting immigrant inflows, the new rules could backfire: they will likely raise costs for American corporations and push them to step up the expansion of their so-called global capability centers in India. Companies including Microsoft Corp., Google and Morgan Stanley already run large GCCs in India.

Such an expansion, combined with reduced education outflows if fewer Indian students choose to study abroad, could help offset the economic drag from slower remittance growth, Citigroup said. Its economists also estimate that most of India’s remittance inflows come from Indians holding other types of visas or residency status.

“All told, the impact on the Balance of Payments is expected to be modest in the near term,” said JP Morgan’s Jain. “The bigger concern is what this does to trade negotiations and whether it is a harbinger of future pressures on offshoring.”