H-1B visa reforms 2017: Impact on Indian IT industry

The H-1B is a non-immigrant visa in the United States. It allows U.S. employers to temporarily employ foreign workers in speciality occupations. On the other hand, the L1 visa is a temporary non-immigrant visa which allows companies to relocate foreign qualified employees to its U.S. subsidiary or parent company.

 Key reforms suggested in the H-1B Visa are..

  • The minimum salary of H-1B visa holders is to be doubled to $130,000. (The raised salary level – to approx. $130,000 – is more than double the current H-1B minimum wage of $60,000, which was established in 1989 and has since remained unchanged)
  • Remove the ‘per country‘ cap for employment-based immigrant visas, so that all workers are treated more fairly and to move to a system where employers hire the most skilled workers without regard to national origin.
  • The legislation sets aside 20 percent of the annually allocated H-1B visas  for small and start-up employers to ensure small businesses have an opportunity to compete for high-skilled workers.
  • It requires employers to first offer a vacant position to an equally or better qualified American worker before seeking an H-1B or L-1 visa holder.
  • The Department Of Homeland Security will have additional oversight authority to investigate fraud and abuse and also to increase penalties for companies that violate the bill’s requirements.

 

The Indian IT industry..

  • Currently the annual quota of 65,000 visas, plus another 20,000 for employees with advanced U.S degrees, is awarded by lottery. If the process becomes market based, better -paying employers such as Apple Inc., Alphabet Inc., Amazon Inc. will get additional advantages over the IT cos.
  • Infosys and TCS, the top three visa sponsors would either have to increase the wages or settle for a much reduced scale of business in their most important market (USA).

For example, if Infosys raises it’s salary for the 25,000 applicants it sponsored last year from $81,000 to $130,000, it would have to shell out an additional $1.2 billion for it’s labour bill. If Infosys, cannot pass out that cost on to customers it would have to reduce almost half of it’s annual operating profit.

  • The traditional Indian IT companies (like TCS, Infosys, Wipro, HCL, etc) enjoy a 10 percentage operating margin advantage over companies like IBM corp., Accenture. The harsher the Immigration policies, the faster this gap will reduce.
  • Clients are spending much more on artificial intelligence, business analytics, cloud etc, hence the budget for legacy IT services such as application maintenance declines. Indian companies have to invest a lot in new technologies, automation, etc to gain significant market share in the future.

 

IT shares have fallen drastically after this announcement..

  • Market leader TCS has lost 4.5% of it’s market cap. TCS is trading below 16 times expected earnings, the lowest since 2008 ( while writing this post TCS was trading at INR 2,238).
  • Infosys has lost 2% of it’s market cap and the other IT companies are also in a similar situation.
  • The BSE IT index closed at 3% lower valuation flushing out approx 33000 cr in one day- the biggest loss among all BSE indices.

Negotiations with the Trump Government are on track. NASSCOM, the IT regulatory body in India has recently said that it’s executives will meet Trump administration to discuss the H-1B Visa Bill. Prime Minister Narendra Modi, is also expected to meet President Trump and discuss over this issue. Let’s wait and see how things span out.

We all hope the “Best friends” (India and US) will sort it out soon!

 

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