US visa hike means $250 mln costs/year for IT cos

by Abhinna Shreshtha    Aug 12, 2010

Having braved last year’s protectionist onslaught, Indian IT firms are now faced with another challenge. Last week, the U.S. senate passed a legislation that requires all companies, with employees in the U.S., and with more than half their U.S.-based employees on H1-B or L-1 visas to pay an additional $2000 to $2500 per visa. The hike is apparently aimed at aiding a new $600 million border-security spending bill.

It is no surprise that this legislation has caused resentment among the likes of Wipro, Infosys, Patni, et al. If it becomes law, the current fees of U.S. visas for their employees will nearly double.

NASSCOM, the apex body of Indian IT, says the impact could be as high as $200-250 million in additional human resource costs per year. “The US still remains the biggest market for Indian IT companies and should this bill come through we foresee a negative impact on IT companies which are investing in the US. We are closely working with agencies in the US and with the Indian government to reach a suitable solution to this issue,” said NASSCOM in a statement.

Indian IT services companies are also puzzled and irritated on being targeted once again. Infosys, which currently has approximately 11,000 technology professionals in America on HIB & L1 visa, has called the hike ‘unfortunate and discriminatory’ and said it was unwanted at a time when ‘the need is to open markets to make companies more competitive in the global market place’.

Though the exact repercussions will become clear later, Infosys CEO – S Gopalkrishnan has hinted that the increased costs could be passed on to the customer.

Jeya Kumar, CEO of Patni, which had more than $133 million in revenues from the U.S. last quarter, said the hike would erode cost arbitrage and cause a change in the operational model of Indian offshore providers. “The bigger issue is that if the 50-50 rule comes into effect then it will be a double whammy for us,” he said, referring to a proposed law that limits the number of non-US workers by foreign companies to 50% of the total workforce in the country.

The timing of this decision by the U.S. senate comes as a bit of a surprise, considering the world is just recovering from the economic recession and that captains of American industry and the American president himself have stressed the need for open market and globalization. Pratik Kumar, corporate VP (human resources) at Wipro agrees. “The current US administration has been a vocal supporter of globalization, however this move clearly puts barriers to trade and will also adversely impact talent flow into the US which we think may have greater economic repercussions,” he said.

The US senate is expected to meet on Tuesday to vote on the border legislation bill, hardly giving the Indian IT contingent time to put across their arguments and find a solution. Sen. Charles Schumer, who is spearheading the new bill, has been known to publically criticize IT services firms, especially Infosys, for ‘adding to unemployment in the U.S. by outsourcing jobs to foreign workers’. The Obama administration’s earlier outrage over outshoring is still ringing in the IT industry and this new measure will only add fuel to the fire.