Were IT Companies Already Gearing up for Visa Reforms?

Wed, 26 Apr Pre-Open

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India's IT services sector has been in the limelight ever since Donald Trump took over the US presidency, thanks to his anti-immigration rhetoric and protectionist policies.

Recently, the Trump administration accused Indian IT majors, Infosys and Tata Consultancy Services (TCS) of abusing the H-1B visa program and cornering a lion's share of the visas by gaming the lottery system for H-1B visas.

President Donald Trump had signed an executive order earlier this month for tightening the rules of the H-1B visa program to stop its abuse, by replacing the lottery system with a merit-based immigration policy. A decision that has potential to impact India's US$ 150 billion IT industry.

However, Indian IT majors such as Infosys and TCS, saw H-1B trouble looming even before Trump came to power in the US, and have been reducing their dependency on the visa system from before Trump took office.

Even before this latest executive order, the Indian service provider industry was taking steps to reduce their dependency on H-1B, as reflected by the drop in overall applications for H-1B from 236,000 last year to 199,000 this year.

IT majors have been focusing on hiring locally to move away from visa issues.

According to Infosys Chief Operating Officer (COO) U B Pravin Rao, the IT major has focused on increasing its presence in the US with a lot more local hiring in the past 24 months. The company is also looking at setting up development and training centres in the country as part of its efforts to tide over visa-related issues.

India's largest software exporter, TCS has reduced the number of visas it has applied for over the past few years. Further, the company has several local development centres in the US and has been hiring local engineers.

In fact, TCS applied for only 2,000 H-1B visas in 2016, compared to 14,000 visas in 2015. More recently, TCS COO N G Subramaniam said that the company's strategy was to move to a regime where its operating model would be visa-neutral.

It is clear that India's IT majors were already gearing up for reducing their dependence on the H-1B visa. Trump may have only accelerated their defence.

Meanwhile, the industry has responded strongly to the allegations of the Trump government. The National Association of Software and Services Companies (Nasscom), the Indian It industry's apex body said that Indian IT service entities accounted for less than a fifth of H-1B visas in America. And that TCS and Infosys together received only 8.8% of the H-1B visas approved in FY 2015 rebutting the US government's claim of unfair use of the program.

Policymakers too have chimed in against the protectionist policies of the US government. Cautioning against protectionism, RBI Governor Urjit Patel said, where would giant American corporations like Apple, Cisco and IBM be if they had not sourced the best products and talent from across the world.

He said the share prices of the most efficient corporations in the world, including in the US, are where they are because of the global supply chains.

Chief Economic Advisor Arvind Subramanian too expressed worries about serious actions taken by the Trump administration on the H-1B visa program as exports of services make up about 40% to 45% of the total exports. And over 50% to 60% of the service exports go to the US.

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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