The Covid pandemic continued to batter the US economy, with the country’s GDP shrinking 33 percent in the April-June quarter to record its worst contraction since World War 2. Unemployment, too, is at its worst level since that war. With a presidential election around the corner, the rhetoric around jobs for Americans, predictably, is again rising. On cue, President Donald Trump has announced further restrictions on people with H-1B visas, preventing them from working in federal contracts.
In June, the American President banned workers on H-1B visas from entering the US till the end of the year. There’s nothing new here, however. Restricting guest worker visas has been a part of Trump’s ‘Buy American, Hire American’ agenda since his inauguration in January 2017.
India’s IT services companies, by now accustomed to Trump’s ways, will nevertheless wince at his latest move, though experts say it will not impact them much as only about 3 percent of their work involves federal contracts.
As V Ramakrishnan, CFO of TCS pointed out in an earlier interview with Moneycontrol, companies will always figure out a way to work within the rules, though it may not always be the most efficient way.
Trump’s clampdown since taking over has already resulted in increased localisation in the US, with top Indian IT firms now having more than 60 percent of their employees in the US as locals. Indian firms’ visa dependency has also come down in the last three years.
Even so, given that the US is the largest market for India’s IT services firms, more restrictions will impact their ability to cater to the market in the long run. They will therefore need to look at others options that offer them stability.
Yugal Joshi, Vice President of IT consulting firm Everest Group, said: “Besides the political rhetoric given the election and ongoing pandemic, the direction of such a move (ring-fencing federal contracts) is problematic for any skill-based industry and this isn’t limited to India-based IT service firms.”
What impact will the restrictions have?
Experts believe that offshoring will rise as will localisation as firms seek to further reduce their dependence on US visas. The US will consequently lose out on innovation as well as research and development, IT services industry lobby Nasscom said in a statement.
While billing from federal contracts may not be huge, Joel Yanovich, Attorney at Murthy Law firm, a US-based immigration firm, said the number of H-1B workers Indian IT services companies deploy on such contracts is not insignificant. And from here on, these firms will have to use American workers for federal government projects.
Krishnan Venkatachary, Chief Financial Officer, Cigniti Technologies, said that the company is currently in talks to close a federal project. “If the project goes through, we will be employing American workers instead of H-1Bs,” he added.
Offshoring
According to Venkatachary, though the restrictions might be challenging, the company is talking to clients about moving projects offshore. This is the option most IT firms are likely to explore. Offshoring refers to movement of resources from a high-cost area to the area that is more cost efficient. Here the move will be to India.
In terms of the resource mix, Cigniti has about 74 percent its people off shore and 26 percent on site. “We are looking at 80-20, where 80 percent will be offshore and the rest onsite,” he added.
Other firms, too, are looking at improving their offshore mix. In a recent conversation with Moneycontrol, Manoj Bhat, CFO, Tech Mahindra, said the company is in discussions with clients to move work offshore.
Milind Lakkad, Human Resources head, TCS, told Moneycontrol that the pandemic has made it a challenge but TCS is always looking for an opportunity to move work offshore.
HCL Tech started moving work offshore for a large client in January, said Prateek Agarwal, the company’s CFO, during a recent interaction. With remote working becoming the norm, clients are more understanding about moving work offshore, he added.
Challenges
But all this will come with its own challenges. In the short-term, with visa extensions taking time, projects will suffer since firms might not be able send resources onsite or assign an H-1B resource instantly.
Also, without visas, thousands of techies will be forced to return home. This would inflate the local labour market in India, Joshi said.
“Also, onshore deployment is a major attraction for employees, and if that reduces, it will impact the IT industry’s positioning as an employer,” he added.
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