The effects of this announcement will impact the GDP and the overall business economy and growth of US.

​Today a legislation impacting H1-B visa programme has been introduced in the US House of Representatives making it difficult for companies in the US to employ skilled foreign workers. Among other things, the bill more than doubled the minimum wage requirement of H1-B visa holders to US $130,000.

The H-1B visa is a non-immigrant visa that allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise in specialised fields. Under the H1-B visa programme, US-based companies hire highly skilled foreign workers, up to a maximum of 85,000 a year. Of these 65,000 are hired from abroad and 20,000 from foreign nationals studying in the US.

The H-1B visa program tends to be more critical to outsourcing firms than US tech firms, according to a Reuters report. For instance, more than 60 percent of the US employees of Infosys are H-1B holders, and the company in its annual report has cited an increase in visa costs as among factors that could hurt its profitability.

The top 10 recipients of H-1B visas in 2015 were all outsourcing firms, according to government data compiled by the IEEE-USA, a professional organization representing US engineers. Sixty-five percent of H-1B petitions approved in the 2014 fiscal year went to tech workers, mostly from India, according to USCIS.

A joint research paper by Greyhound Research’s Sanchit Vir Gogia - CEO and Anshoo Nandwaani - VP, Principal Analyst, reveals this development [H1-B visa proposal] is a significant announcement by the newly appointed Trump administration.

While changes were expected under the new President, the suddenness and the order of the announcement has surely caught IT Services Providers across the globe by surprise, they said.

Some of the possible outcomes of this proposal would be according to the research paper are:

Ramifications for both sides, the IT Services Providers and the US economy: Skilled foreign workers who come to work in the United States on H1-B visas don’t just directly supplement the US IT industry with specialised skillsets, they also contribute indirectly to other industries in the US. Often H1-B workers bring their families along and thereby bring additional business for other industries like real estate, Banking, hospitality, to name a few. The effects of this announcement will impact the GDP and the overall business economy and growth of US. While 20 percent of H1-B visa quotas have been set aside for start-ups and small employers with 50 or fewer employees, there is no denying that this will be a dampener to the spirit of innovation and entrepreneurship.

Skills, not salary, should have been the basis of this reform: Using wage as it’s only pivot, the bill has more than doubled the minimum wage requirement of H1-B visa holders from $60,000 to $130,000. There is no mention of any skills based criteria/requirement. In addition, the High-Skilled Integrity and Fairness Act of 2017 prioritises market-based quota of H1-B visas to companies willing to pay 200 percent of a fixed wage. In light of the STEM (Science, Technology, Engineering and Math) skills gap currently prevailing in the US, a thorough on-the-ground study of multiple factors, with skills being the primary factor, should have been the foundation of the Act.

Most US-based Fortune 500 organisations are deeply invested and dependent on IT services providers using H1-B visas to source skills: In midst of all this, it’s critical to remember that most US-based companies (including many Fortune 500s) are highly dependent on IT Services Providers. These companies actively outsource for both skills and cost advantages – important to note, it’s not just the latter that drives the decisions. Changes in the H1-B visa arrangement will add immense cost pressures on these organisations. Hence, neither they nor the Trump administration are in a position to make any drastic changes right away.

Minimum salary requirement of US $130,000 is not too far from the current average and hence not a prohibitive figure to match: The current average salary of a skilled foreign worker employed via H1-B visa is $100,000. The newly announced minimum salary requirement of $ 130,000 is not prohibitive and can be managed by way of creative salary restructuring and including Per Diems, benefits and other allowances as part of base package. As per Greyhound Research estimates, upon this restructuring the average margin hit for an IT Services provider will be in the range of 5-10 percent ​year-on-year depending on the total base of employees currently on H1-B, the existing compensation and need for onsite in near-term. Critical to note, a hit beyond this number will force these firms to either renegotiate contracts with existing clients or else the street will act ruthless and these firms stand to lose potential ground on market capitalisation.

While onshore and nearshore contracts will see a surge, transition cannot be managed overnight and will give rise to the Coopetition economy: With the prevailing protectionist sentiment and newly imposed restrictions, the US business ecosystem will see a sharp rise in on-shoring and near-shoring arrangements. However, it is critical to remember that these cannot be built overnight and need-based handshake between IT Services providers and sub-contracting to local IT Services providers will be the routes most choose to take, giving rise to the Coopetition Economy.

Nasscom response

In a statement released today, Nasscom highlighted the specific provisions of the bill that need to be considered are:

The bill does nothing to address the underlying shortage of STEM-skilled workers, which has led all companies to have a calibrated strategy of hiring locally and bridging the skills gap by bringing skilled workers on non-immigrant visas including H-1Bs,

The bill does not treat all IT service companies with H-1B visa holders equally, and the provisions are biased against H-1B dependent companies,

The bill does nothing to consider regional variations in salary structure, which could help some states and hurt others,

The higher wage level would have ripple effects for many other industries including nursing, engineering, life sciences, and others.

“Since the rationale for the Administration and the Legislative wing is to protect job opportunities for Americans, our strong suggestion is that they should carefully calibrate the conditions keeping in mind the skill shortage in the US, " said R. Chandrashekhar, President, NASSCOM, adding, "once that is done, they should not leave any loopholes in the rules being framed that leave some channels open for circumventing the limits. Raising wage levels for dependent companies alone will defeat the basic objective as non-dependent companies can continue to bring in skilled workers at lower wage levels, thereby nullifying the objective of protecting job opportunities for American nationals”.

Shivendra Singh, Vice President, Global Trade Development, Nasscom had said to Firstpost earlier that the Indian IT industry in the US has created 411,000 indirect and direct jobs and has been paying $5 billion in taxes early. “Around 90 percent of H1-B visas is used by the top 7 Indian IT firms. In 2015, we got about 13 percent of the visa allocated which only goes to show that Indian companies do not take the majority of the visas issued,” he remarked.

Singh pointed that the data from the US Labour Department points out to a shortage of skilled professionals in the industry. According to December 2015 projections by the US Labor Department, employment of computer and information technology occupations will grow 12 percent from 2014 to 2024. Since there is a shortage of native STEM skill experts, as many 2.4 million STEM jobs in the US would not be filled by 2018. “The US will have to look at other countries to fill up these vacancies,” Singh said.

While announcing Infosys’s October-December 2016 results, Vishal Sikka, CEO was hopeful that policies of the Trump administration would be friendly toward business, innovation and entrepreneurship. Sikka pointed out that with president-elect Trump himself being an entrepreneur and ‘has a very business-friendly, innovation-oriented background.” However, Trump has dashed the hopes of the Indian IT industry with his H1-B visa proposal today.