The US President Donald Trump administration’s partial walk-back on H-1B visa fees has eased immediate concerns for Indian IT firms, but analysts warn that structural changes, wage pressures and macro headwinds will continue to squeeze margins and weigh on valuations.
On September 19, President Trump signed a proclamation imposing a $100,000 fee per H-1B petition, widely seen as pricing out Indian talent and closing a key labour channel. In a subsequent clarification, the White House said the payment would be a one-time fee, applicable only to new applications from the next lottery cycle (March–April 2026), and not on renewals. The proclamation is in effect for 12 months but may be extended.
“That should come as a relief to the Indian IT services industry which was otherwise staring at the H-1B visa route being virtually closed,” said Girish Pai, head of research at BOB Capital Markets.
“The one-time cost will likely be passed on to customers or absorbed by companies, as it is not as onerous as was initially thought.”
Pai calculated that if the top five Indian IT players apply for 7,500 new visas—half their FY25 annualized usage of ~15,600 (including renewals)—and the fee is absorbed internally, the collective adverse impact would be ~85 basis points on FY27 margins, ceteris paribus. To fulfil onsite projects, firms may either see subcontracting costs rise, or accelerate offshoring and near-shoring.
“Offshoring will improve margins while subcontracting will likely be negative,” Pai added.
It also came as a relief that the FY26 H-1B enrollment season will continue as a lottery rather than being wage-based, which had been widely feared. “Had it been the latter, Indian outsourcers would have been at a big disadvantage,” Pai noted.
Deeper Structural Shifts
Analysts warn the bigger challenge lies ahead. “In the worst case, if companies simply choose to pay the additional $100,000 fee, the impact could be 2–6% on FY27 EPS with no change in the labour supply chain,” said Ankur Rudra, head of APAC Telecom & Internet at JPMorgan in a note to clients. “In practice, firms are likely to accelerate near-shoring to Canada and Mexico, expand offshore delivery, and increase the use of local graduates to dilute the impact.”
Rudra flagged the directive for the US Department of Labor to begin rulemaking to increase H-1B prevailing wages. During Trump 1.0, proposals suggested a 27–70% hike across wage levels. With India’s top seven IT companies paying an average of roughly $104,000 per employee in FY24 versus $161,000 at the top US recruiters, the gap highlights the risk to competitiveness if thresholds rise sharply.
Legal challenges are also possible. “We would expect legal remedies against both the additional $100K and potential changes in prevailing wage levels to be sought by the industry,” Rudra said, recalling how the US Chamber of Commerce, National Association of Manufacturers and ITServe Alliance had sued during Trump 1.0.
Macro Risks Dominate
Both analysts cautioned that the sector’s fundamental headwinds extend beyond the H-1B tweaks. Pai noted that proposals to increase the stagnant $60,000 minimum wage threshold—unchanged since 1990—remain on the table. A 2017 bill sought to raise it to $130,000, while the current American Tech Workforce Act 2025 introduced by Senator Jim Banks would push the floor to $150,000.
Separately, the HIRE Act 2025, presented by Senator Bernie Moreno, seeks to impose a 25% tax on outsourcing payments made to foreign workers serving US customers, with no tax deduction allowed. “Believe some of what is happening in the US could get replicated in other geographies especially Europe considering the prevailing anti-immigrant sentiment,” Pai added.
Meanwhile, Indian IT’s reliance on H-1Bs has already fallen. The top five firms reduced usage from 29,200 in FY20 to 15,600 annualised in FY25, a 46% drop. Localisation rates, currently 50–80% across major players, are expected to rise to 90–95% in the next 2–3 years. Firms are also expected to build deeper onsite pyramids and “rebadge” customer employees to manage delivery costs.
“One offset will be that Indian players will be able to charge their customers higher pricing for onsite work,” Pai said. “The other is that more offshoring will happen, or work is going to move to GCCs in India.”
Currency and Remittance Effects
Pai warned of second-order impacts. With the US accounting for ~28% of India’s $119 billion in remittances in FY24, a decline in H-1B deployments could trim inflows. That may weigh on the rupee, although currency depreciation could provide a partial margin tailwind for IT firms.
“Net-net, the walk back from what seemed like a draconian move on the H-1B front is modestly negative to neutral for the sector,” Pai said. “But the industry continues to face macro and structural challenges constraining growth, margins and consequently valuations.”
Most analysts are of the view that the proclamation will delay enterprise decision-making in an already soft demand environment, while accelerating the move toward Global Capability Centers in India and other offshore destinations.
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