There is growing concern that India’s $150 billion information technology industry, which relies heavily on exports to the United States, could slow and become less competitive if the Trump administration tightens rules on hiring skilled foreign workers.
Earlier this month, a bill was introduced in the U.S. Congress raising the minimum salary for positions granted under the H-1B visa scheme from $60,000 to $100,000 per year.
Indian IT companies, which send hundreds of Indian tech professionals to the United States, are among the biggest beneficiaries of the H-1B visa program, which allows foreign professionals to work in the United States.
“H-1B is a very important lifeline for the sector, so if there is a tougher stand on the visas, companies would have to substantially increase local hiring,” said Madhu Babu, who studies the tech sector at brokerage firm, Prabhudas Lilladher in Mumbai.
Sponsors of the bill say it is designed to close loopholes in the high-skilled immigration system being used by some companies to import cheap foreign workers.
India to increase recruitment
Several Indian IT companies are preparing to accelerate recruitment of local employees as they face the possibility that election rhetoric about protectionism may become reality. That message was underlined when President Trump said during his inaugural speech, “We will follow two simple rules: buy American and hire American.”
In recent decades, Indian software firms emerged on the front lines of the global outsourcing industry by using the country’s large pool of trained, low-cost engineers to beat the competition. While some are deployed to client sites overseas, millions of others work in India’s tech hubs, such as Bengaluru.
But this core business model is under threat if immigration and visa policies turn restrictive in major markets such as the United States.
Few make $100,000
Pareekh Jain, who heads research operations in India at the research firm Horses for Sources, points out that many Indians working on H-1B visas earn less than the $100,000 per year minimum proposed under the bill that has been introduced.
“All these steps will increase the cost structure of India IT firms and remove the cost advantage they had in comparison with other regional and global IT firms,” he said.
Indian software companies have long maintained they use Indian employees because of a shortage of skilled workers in the United States and point out that American technology companies such as Microsoft and Intel also employ many Indians on the H-1B visa program. Critics say the lower cost of Indian hires has displaced American IT workers.
At the recent World Economic Forum in Davos, Switzerland, Vishal Sikka, the head of Infosys Technology, one of India’s top IT firms, said in an interview that his firm would have to “train and hire more locally,” whether it is in the United States or other markets such as Australia.
Industry insiders point out that Indian technology employees are flexible and can be easily moved from city to city. Accustomed to the Indian work culture, they often work long hours to coordinate with teams at home without extra pay. Those advantages will not be available with American hires.
Slow IT growth
The software industry is already bracing for slow growth: The National Association for Software and Services Companies (Nasscom) has downgraded the growth forecast for the IT industry for the financial year that ends in March.
The slowdown is likely to be sharper in the coming year, especially for companies that have about half their employees in the United States working on H-1B visas, experts said.
“You will hire more locally, and you will pay higher salaries onsite, so next one and a half year earning growth is also tough for the sector,” Madhu Babu said.
Nasscom plans to send a delegation to the United States in the coming weeks to highlight what it says is the contribution made by Indian technology companies to the U.S. economy. Shivendra Singh, Nasscom’s chief of global trade development, points out that the Indian industry has been a net creator of jobs.
“We have created about, supported more than 411,000 jobs in the U.S., whether it is $20 billion taxes that have been paid by our companies in four years,” Singh said.
The looming threat of visa curbs in the United States comes at a time when the sector is grappling with another challenge — new technologies such as cloud computing and analytics that could reduce demand for traditional IT work by an estimated 30 to 40 percent.
“This is a double whammy,” said Jain of Horses for Sources. Citing the emergence of other global uncertainties such as Brexit, he said “a combination of these factors is the biggest challenge the Indian IT industry has faced so far.”
The outsourcing industry accounts for about 20 percent of India’s exports of goods and services, and has helped catapult millions of Indians into the middle class.