New US Law could Force IT to Tweak Busi­ness Pro­gram

The Economic Times - - Front Page -

Neha Alawadhi & Jochelle Men­donca

New Delhi | Ben­galuru: In­dian in­for­ma­tion tech­nol­ogy stocks fell on Tues­day as a pro­posal to re­de­fine the norms gov­ern­ing em­ploy­ment visas for tech­nol­ogy pro­fes­sion­als, in­tro­duced in the US House of Rep­re­sen­ta­tives, rat­tled the $150-bil­lion out­sourc­ing in­dus­try and prompted an as­sur­ance from the gov­ern­ment that it will in­ter­cede to safe­guard In­dian in­ter­ests. On Mon­day, Demo­crat Zoe Lof­gren — who rep­re­sents a Con­gres­sional dis­trict in Cal­i­for­nia that in­cludes Sil­i­con Val­ley — in­tro­duced ‘ The High-Skilled In­tegrity and Fair­ness Act of 2017’ which, if turned into law, has the po­ten­tial to in­crease salary costs for tech­nol­ogy com­pa­nies, force them to al­ter hir­ing prac­tices and sig­nif­i­cantly im­pact prof­its. The Bill pro­poses a skill and wa- ge-based sys­tem for al­lo­ca­tion of H-1B visas and seeks to more than dou­ble the min­i­mum wage for an H-1B visa holder to $130,000.

Even as ‘H-1B’ trended on Twit­ter and Face­book, the stocks of ma­jor In­dian soft­ware ex­porters such as In­fosys, Wipro and Tata Con­sul­tancy Ser­vices fell by 2.01%, 1.62% and 4.47%, re­spec­tively, on Tues­day as news broke about the pro­posed Bill. With a fall of 3%, the S&P BSE In­for­ma­tion Tech­nol­ogy in­dex was the big­gest loser among BSE’s sec­toral in­dices.

“In­dia’s in­ter­ests and con­cerns have been con­veyed both to the US ad­min­is­tra­tion and the US Congress at se­nior lev­els,” said Vikas Swarup, spokesper­son for the Min­istry of Ex­ter­nal Af­fairs.

Given the likely im­pact that such leg­is­la­tion could have on thou­sands of In­dian pro­fes­sion­als, the is­sue will fea­ture promi­nently dur­ing talks be­tween Prime Min­is­ter Naren­dra Modi and US Pres­i­dent Don­ald Trump later this year, se­nior of­fi­cials told ET.

On Mon­day, a re­port by Bloomberg said an ex­ec­u­tive or­der to be signed by Trump would seek to curb the use of longterm H-1B visas, and the short­term L-1, E-2 and B1visas.

For­eign pol­icy ex­perts reckon that un­tan­gling this knotty is­sue will be a chal­lenge for the Modi gov­ern­ment, which is very con­scious of pro­tect­ing the in­ter­ests and wel­fare of the In­dian di­as­pora. Lof­gren’s pro­posed leg­is­la­tion pri­ori­tises mar­ket-based quota of H-1B visas to firms will­ing to pay 200% of a fixed wage. “For H-1B de­pen­dent firms the changes to reg­u­la­tions and laws will likely cre­ate mar­gin head­winds, (es­pe­cially) for firms such as Cog­nizant, In­fosys and Wipro,” said Peter Ben­der-Samuel, CEO of re­search firm Ever­est Group.

“This is likely to ac­cel­er­ate the adop­tion of the new dig­i­tal busi­ness mod­els which hold the prom­ise of mar­gins which are not de­pen­dent on labour ar­bi­trage,” he said. TCS, Wipro and HCL Tech did not re­spond to emails seek­ing com­ment. In- fosys de­clined to com­ment.

MOV­ING WORK BACK TO IN­DIA

An­a­lysts are of the view that out­sourc­ing firms will need to now con­fer with cus­tomers about mov­ing work back to In­dia. “Ear­lier, clients liked to have peo­ple on­site. But with these new rules, they will be­come more re­cep­tive to hav­ing fewer peo­ple on­shore,” said Di­nesh Goel, the In­dia head of IT re­search firm ISG. The US ac­counts for nearly 65% of rev­enues of the In­dian IT ser­vices in­dus­try.

In­dus­try lobby Na­tional As­so­ci­a­tion of Soft­ware and Ser­vices Com­pa­nies (Nass­com) said Lof­gren’s pro­posed Bill “def­i­nitely has an im­pact on the global de­liv­ery model”, which, sim­ply put, trans­lates to ex­e­cut­ing a tech­nol­ogy project us­ing a team that is dis­trib­uted across ge­ogra­phies.

The Bill’s pro­vi­sions also mean that IT firms will now look at send­ing more se­nior em­ploy­ees like project man­agers or team lead­ers to the US, in­stead of pro­gram­mers or tech­ni­cians.

Cur­rently, the av­er­age salary of a tech­nol­ogy pro­fes­sional on an H-1B visa is $65,000-75,000, ac­cord­ing to Alka Dhin­gra, as­sis­tant gen­eral man­ager at IT staffing firm TeamLease Ser­vices.

At present, the US has a cap of 65,000 visas for the gen­eral cat­e­gory and al­lows a fur­ther 20,000 peo­ple who have a US masters’ de­gree from an ac­cred­ited in­sti­tu­tion to ap­ply. In a year, nearly 200,000 H-1B visa ap­pli­ca­tions are ap­proved, in­clud­ing visa re­newals, ex­ten­sions and other ex­empt cat­e­gories, ac­cord­ing to in­dus­try es­ti­mates.

TeamLease’s Dhin­gra said H-1B hir­ing saw a down­ward trend in 2016. “For TCS, US visa ap­pli­ca­tions nar­rowed to 4,000 in 2016 as against 14,000 in the pre­vi­ous year and only a third of them were granted last year,” she told ET.

FATE OF BILL

Ex­perts are di­vided over whether the Bill would be passed.

Phil Fer­sht, CEO at IT re­search firm Horses for Sources, thinks the chances of the Bill be­ing passed into law are high, with some amend­ments, given the strong sup­port from sev­eral politi­cians. “Immigration of tem­po­rary work­ers to the US will be com­pletely thrown into tur­moil, but it will also en­cour­age US busi­nesses to hire tal­ent in non-US coun­tries in spe­cific ar­eas where they ne- ed the ex­per­tise,” he said. In con­trast, Ron Hira, as­so­ci­ate pro­fes­sor of pub­lic pol­icy at Howard Univer­sity and a long-time critic of H-1B visa abuse, said the like­li­hood of the Bill get­ting passed was fairly low. “The firms that pay rock bottom will likely get fewer visas in such an al­lo­ca­tion process,” he told ET over email.

The change in busi­ness model will also de­pend on the ex­ist­ing work­ing model of in­di­vid­ual IT com­pa­nies, which have been try­ing to in­crease lo­cal hir­ing in the US. “If com­pa­nies do more re­mote in­fra­struc­ture man­age­ment, they will need fe- wer peo­ple on­site. But if they have a higher mix of con­sult­ing or dig­i­tal, then they will need to meet the client face-to­face. The win­ners and the losers are not so eas­ily ap­par­ent,” said ISG’s Goel.

An­other Bill pro­posed by Sen­a­tors Chuck Grass­ley and Dick Durbin also seeks a re­form of the H-1B visa pro­gramme. It pro­poses, among other things, that tech­nol­ogy com­pa­nies make “a good-faith at­tempt to re­cruit a qual­i­fied Amer­i­can worker” be­fore em­ploy­ing H-1B work­ers.

(With in­puts from Ran­jit Shinde, Di­pan­jan Roy Chaud­hury and Ishani Dut­tagupta)

The US ac­counts for nearly 65% of rev­enues of the In­dian IT ser­vices in­dus­try

ARINDAM

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