Will Protectionist Policies Hurt the Indian IT Sector?

Wed, 19 Apr Pre-Open

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India's US$ 115 billion software services sector has come under tremendous pressure since Donald Trump took over the US presidency, thanks to the protectionist policies and immigration restrictions from the international markets, which make up a bulk of the Indian IT companies' revenues.

The US government has signaled its intention to restrict the number of foreign workers and is in the process of reshaping the H1B work visa system - used liberally by Indian IT firms.

US President Donald Trump is set to sign an executive order that will tighten the process of issuing H1B visas, and revise the system, creating a new structure for granting these visas.

The US government announced its intention to prevent the abuse of the H1B work visa system and said the system should help US companies hire highly skilled foreign workers only when there is a shortage of skilled employees in the country.

There are plans to prohibit visas to entry-level engineers too. H1B work visas are most sought after by Indian firms and professionals, mostly in the Information Technology sector.

A US government official even named Tata Consultancy Services Ltd, Cognizant Technology Solutions Corp. and Mphasis Corp. as examples of outsourcing companies that would likely have fewer visas approved as the administration's changes are adopted.

Employers are understandably concerned, as reflected by the fact that employers applied for about 16% fewer H1B visas for highly skilled workers this year than in 2016. According to data released by the US government, employers seeking visas for 2018 submitted 199,000 applications this year, compared with 236,000 last year.

As in past years, the number of applications far exceeded the 85,000 visas available. But this was the first time in the past five years that the total number of requests has decreased.

It is not just the US slowly closing its doors to relatively cheap immigrant workers; there is already an air of protectionism in the global markets. Singapore and the UK are both cutting down on visas to Indians in the IT sector, while also increasingly protecting high-paying computer engineering jobs for locals.

Just yesterday, Australia scrapped its '457' visa program used by over 95,000 temporary foreign workers, majority of them Indians, to tackle growing unemployment in the country. The Australian president asserted that the new visa program will ensure that foreign workers are brought into Australia only to fill critical skill gaps and not because an employer finds it easier to recruit a foreign worker than go to the trouble of hiring an Australian.

An overall protectionist trend is expected to hit the Indian IT firms' bottom line. Especially in the US, which accounts for more than 50% of revenues of India's IT majors. Indian IT companies such as Infosys, Wipro, and TCS could take a hit on their revenues in the short term.

However, we believe that it is unlikely that the companies will substantially bring down their focus on the US. Instead companies may look for other means to reduce costs or protect margins.

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