Uncle Sam’s Immigration Reforms Will Be India’s Bugbear?

Indians are one of the largest immigrant groups in the US, about 6% of the legal permanent residents. However, the latest US immigration reforms will not affect them much. The reforms are aimed more at controlling illegal and cross-border immigration. The Indian residents of the country are a financially stable group and would not cause much worry to the US government.

The new immigration laws also aim to provide ways to grant citizenship for some 11 million undocumented residents. The present US government will try to push the reforms through as this is expected to expand its voting base.

India will, however, focus more on the reforms aimed at non-immigrant visas that try to restrict the dependency on skilled immigrant workers and safeguard American jobs. The reforms increased the visa caps, fixed green card processes and removed the outplacement clause, which bars companies relying on H1-B visas from placing foreign employees at client sites.

This affects the Indian IT industry, one of the major contributors to the Indian economy and fiscal growth. The IT industry in the US and other parts of the world faces a shortage of skilled workers. To offset this and to ensure better co-ordination and end results, as well as cost effectiveness, Indian IT companies have been placing their staff at client sites all over the world.

The Bill acknowledges the shortage of skilled workers within the US and has increased the annual caps on H-1B visas and green cards sponsored by employers. However, some restrictions have been placed on the salaries, deployment and employment of foreign workers under the H-1B and L-1 categories.

The Proposed Bill
The Bill restricts companies from obtaining further visas if:
1. In the current year (2014), more than 75% of their staff is H-1B or L-1 visa employees
2. In 2015, the ceiling will be reduced to 65%
3. In 2016, it will be further reduced to 50%

It could also result in payment of additional fees of $10,000 per employee.

Employers will also be required to post for 30 days a detailed job offering on the US Department of Labor website before employing an H-1B employee for the position. This will lead to execution delays, along with increased onsite costs, and may adversely affect the competitiveness of the Indian IT industry.

How it affects India
India views the new Visa Bill as an indication that the US is now less open for business and it is now adopting the same tactics of inclusiveness that India and other countries have been accused of. Restrictions will adversely affect the approximately $118 billion business of the Indian IT industry in the US.

A study by JP Morgan last year estimated a $2.6 billion loss to the IT industry and a loss of $6 billion in terms of indirect effects in relation to job losses and the loss caused to the IT-related service businesses. This is 0.4% of India’s GDP. The software lobby body, NASSCOM, has indicated 25% loss of revenue amounting to approximately $45 billion, which is almost 2.5% of India’s GDP.

As we are aware, the Indian IT industry relies heavily on visa-employed technical and managerial staff for its onsite offices. Even if it wants to comply with the new US requirements and recruit American staff, it will be difficult as there is a significant shortage of skilled workers in that country. Local recruitment will also lead to higher employee costs in terms of salaries and other benefits.

Indian IT industry and GDP
The IT sector contributes over 10% of India’s GDP or more than $118 billion. NASSCOM estimates that in the current fiscal year, India’s IT and BPO sector will touch $84-87 billion in export of software and services, with a growth rate of 12-14%. The industry is also expected to create 22 million jobs by 2015. Interestingly, The Indian IT industry also contributes to the fiscal growth of the US economy and provides direct and indirect employment in the country as well. However, Indian IT companies will have to remodel their operations now and work within the framework of the US visa reforms. And they still have to ensure that in spite of higher onsite costs, operating costs are trimmed to retain a healthy profit margin.

NASSCOM is working with advocacy groups, such as Compete America, Tech America and US India Business Council (USIBC) among others, to reduce the adverse effect of the new Visa Bill on the Indian IT industry. The present pro-business Indian government is also expected to strongly advocate its cause.

It is now quite apparent that both India and the US need each other – economically and politically. One can expect a toning down of the Reforms Bill and also a change in the IT business operating systems to meet the new requirements. The problems are not insurmountable.