How US Visa Fees Hike Will Hit Indian IT

by Sohini Bagchi    Jan 14, 2016

visa

The US government has finally issued a notification implementing an increase in the visa fee for certain categories of H-1B and L-1visa applicants. The move comes as a blow to the roughly $150 billion IT industry in India that currently sends a large number of professionals to the US to work at their client’s locations.

H-1B and L1 visas are non-immigrant visas used by companies to employ foreign nationals in the US temporarily. H-1B is applicable for persons when non-US-based companies recruit people for posts in the US and L1 is when Indian IT professionals are given “on-site” stints in the US.

At present, India generates about three quarters of its revenue from the US. The long-pending issue that raised its ugly heads again prior to the US Presidential elections 2016 to be held next month, can hurt the overall IT outsourcing sector in India, believe experts. 

Dark clouds looming

The US Citizenship and Immigration Service (USCIS) said, applicants for certain categories of H1B visas post December 18, 2015 must submit an additional fee of $4,000. In addition, for those applying for certain L1A and L1B must submit an additional $4,500. This will remain effective through September 30, 2025. In a statement, USCIS further warned that it will begin rejecting H1B and L1 visa petitions received on or after February 11, 2016 that don’t carry the information required under the new law. They mention the hike was essential in order to shore up revenues for the 9/11 Response and Biometric Exit Fund.

Read more: H1B Barriers Force Indian IT Cos To Hire Locally

The H-1B and L1 visas have been under the scanner mainly due to the employment issue in the US. The country has over 20 non-immigrant visas apart from immigrant visas. H-1B and L1 visas accounted for only 2.35% of the total non-immigrant visa applications, unlike tourist visas that had the highest share at almost 65%.

Under the proposal, the supplemental H-1B visa fees could jump to $4,000 each from a $2,000 fee put in place in 2010. The proposal will cost employers $4.2 billion over 10 years, Bloomberg Intelligence analyst Caitlin Webber said in a report.

Indian IT firms in the storm

In such a scenario, Indian companies have reasons to worry, primarily because they are the biggest users of the H-1B and L1 visas. India’s three biggest IT companies Infosys, TCS and Wipro roughly employ around 15,000 people each in the US. These companies rely heavily on H-1B visa workers. 

“The H-1B visa program has also been used heavily by Indian companies bringing over strictly temporary workers to support their business model of outsourcing back-office work for US companies,” noted Republican US Presidential candidate Jeb Bush in Council of Foreign Relation report.

Raising fee on H-1B and L1visas can be considered a “tax on business” for companies hiring non-US nationals, which would therefore prefer to hire US citizens. Ron Hira of the Economic Policy Institute estimated that Americans lost over 12,000 jobs to H-1B workers, as per a PTI report, which mentioned, last year, the US government started investigations against Infosys and TCS after US workers were allegedly laid off to be replaced by H-1B workers. Wipro has also faced wage related law suits.

In a study released in September last year, Nasscom, trade association of Indian IT industry, said Indian IT companies have paid between $70 and $80 million annually for the US Treasury approximately. In view of that, the new punitive measure is expected to raise between $1.4 billion and $1.6 billion every year for the next one decade.

In December, Prime Minister Narendra Modi also raised the issue with Obama at the historic agreement on climate change in Paris. Modi, in a Twitter post this week, also said he had shared his concerns over the proposed legislation with President Barack Obama during a phone call between the two leaders.

The silver lining

India’s IT firms are likely to raise client fees and process more work from their centres in India to cushion the impact of an increase in fees for work visas in the United States, their top market, investors said. The new US measure will curtail 50-60 basis points off the profit margins of firms like TCS and Infosys from the next fiscal year starting April 1, they said.

According to Thomson Reuters data, TCS, Infosys and Wipro Ltd have in the past year increased their focus on high-margin digital and cloud computing services, as competition and pricing pressure on routine IT services dented growth. “The higher visa fee is one of the headwinds…but they can expect to recoup some of the costs through contract re-negotiations and the stronger dollar,” Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance told Reuters.

Nasscom estimates local IT firms would incur an extra $400 million a year in costs due to the spike in visa fees. However, independent tech analyst Vikram Roy believes, as Indian IT firms sharpen focus on high-end digital technology services instead of traditional technology infrastructure maintenance and software application projects, they would need to send fewer staff to client locations overseas.

“Indian IT companies have already learnt that with digital services you can trim down the number of people that need to work out of client locations. Therefore, visa costs may not pose a long-term threat to these companies,” he concluded.

(With inputs from agencies)