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Impact of US Visa Suspension on the Indian IT Sector

  • Suspension of processing and issuance of non-immigrant work visas
  • Impact on the Indian IT Sector

 

US President Donald Trump has issued a proclamation to temporarily suspend the issuance of H-1B visas, a step which is expected to specifically impact a lot of Indian IT professionals, along with other overseas service visas for the rest of the year. Just last year (FY 2019), out of the 188,123 H-1B Visas issued, 131,549 or ~70% were awarded to Indians with around ~28,500 going to Chinese citizens. Similarly, with regards to H-4 Visas, the State Authority issued 125,999 H-4 visas out of which 106,162 or ~84% visas were issued to Indian citizens, followed by 5,701 for mainland Chinese citizens, thereby highlighting the extent of the hit the Indian IT sector is likely to face on account of this move. This visa ban is said to free up around 520,000 jobs, somewhat denting the rather high unemployment rate that the country has recorded on account of the pandemic. More than 45 million people have applied for unemployment claims since March 2020, after the US went into a lockdown in an attempt to contain the spread of the pandemic.

The announcement halts and limits the access to enter the US of H-1B, H-2B and L visas and their dependents till December 31, 2020. The US administration on last week said, it was extending the 60-day ban on immigration and non-immigrant worker visas which was already in place from April 22, till the end of 2020. In addition to this, it also includes certain categories of J visas like an intern, educator, trainee, camp guide, or summer work travel programme. In order to fill a vacuum of highly-skilled, efficient, low-cost employees in IT and IT enabled, other relevant domains, the US administration issues a certain number of visas each year which permits companies from outside the country to send their employees to work on client sites based out of America. Out of these work visas, the H-1B remains the most common among the Indian IT firms.

The Visa suspension order could negatively impact hundreds of thousands of Indians awaiting green cards. From a political standpoint, as mentioned earlier the visa ban would open up 520,000 jobs for U.S. workers, shoring up Trump’s base and tapping potential voters who have become fearful of immigration because of the pandemic.

The chart below depicts the top 10 tech firms which have had maximum number of H-1B visa approvals in 2019.

 

 

It is not only the Indian IT firms that rely on the H-1B visa but the list also includes leading players in technology such as Google, Microsoft, Facebook, amongst others. US-based Manpower Group, along with Swiss firm Adecco and Dutch firm Randstad, are among the large subcontractors that supply crucial human resources to the global IT industry by availing themselves of H-1B visas. The changes in immigration policy have seen a sparking opposition from corporate America and tech sector executives including Google’s Sundar Pichai and Tesla’s Elon Musk.

According to the US State Authority, as of April 1, 2020, the US Citizenship, and Immigration Services (USCIS) had received about 2.5 lakh H-1B work visa requests. Indian citizens had applied for as many as 1.84 lakh H-1B work visas for the current FY ending March 2021.

Apart from the deferment of these work visas, the executive order signed by Trump has also made some broad modifications to the H-1B work visa norms, which will cease to be decided by the currently prevalent lottery system. The new set of rules will now favour highly proficient workers who are paid the maximum wages by their respective companies. This is going to have a substantial impact on Indians given that they are the major beneficiaries of the visa. There are about four lakh H-1B and one lakh L-1 Indian visa holders in the US employed in several tech and IT firms. As per Kotak Institutional Securities report, the ban of H-1B and L-1 visas beyond September will affect the talent supply chain of the IT companies even if the companies have increased their localisation in the US, which is more than 50 percent. The extended suspension of visas will have an impact on the tech supply chain in the US as these companies will not have the ability to move resources at the back of the ban. This will also impact the fresh application of visa and those with valid visa travelling to the US.

With the Indian economy already reeling under the impact of the Covid-19 pandemic, this move comes in as a fresh blow to a country that has thus far been the biggest beneficiary of the US H1-B visa regime. According to CRISIL, the suspension of the H1-B visas by the US would cost the Indian IT firms USD 157 Mn (INR 1,200 crore) and have a marginal 0.25-0.30 per cent impact on their profitability. The silver-lining attached to the fact is that, with higher share of employees working from home and with continued restrictions on mobility due to the pandemic, the onshore requirements of IT firms are likely to be lower and is indirectly likely to have the moderate impact on the industry as a whole. Like several industries re-inventing themselves during this pandemic, the Indian IT industry will also need to transform to better serve the new-normal and whilst adjusting to global challenges, with the current visa ban being one of them. With travel restrictions currently in place, the impact is likely to be seen during Oct-Dec 2020, which is when the new H1-B season typically commences. While the current order is effective till the end of 2020, many participants are expecting more policy changes to come into force in a post Covid-19 era which hopefully could make the allocation of the H-1B visa process more efficient and supportive to the industry.

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