The ban on H1B Visas – A roadblock for Indian IT Services Companies?
Blog: NASSCOM Official Blog
The US Visa Ban Story
The trump administration has put a ban on new H1B visas and certain other non-immigrant worker visas until December 31, 2020, as the US government wants to protect the interest of domestic workers who have been adversely impacted due to the contraction of the US economy post the pandemic.
A host of companies dominated by the technology leaders have been using these visas to get low cost employees from developing countries such as India and China. This trend has been doing very well both for the employees as well as the employers over the last couple of years. But, this has been at the expense of the increasing unemployment of the domestic workers, and thus the trump administration has been looking for ways and means to change the visa rules in order support more domestic employment since January 2017.
Source: Reuters; Indian Express
The Impact
Since the ban is effective on processing of all new H-1B, H-2B, J, and L visa categories stand, and thus they stand suspended. Also, people who do not have a valid non-immigrant visa as of June 23, and are outside of the US, will not be allowed to enter the country until December 31, 2020.
Impact on the Indian IT companies
As seen in the chart above the top visa approvals in 2019 were for the technology companies which includes global technology vendors, system integrators as well as Indian and MNC IT companies. A lot of discussion has been floating around that it would have an adverse impact on Indian IT companies.
In the short run, the current ban does not seem to have a major impact on the IT services segment as new visas contribute 5% or less for overall US headcount for most IT companies.
Source: USCIS data; Company data, Nomura Estimates; Business Insider
Indian IT companies efforts towards localization
One of the key reasons why Indian IT companies are not stressed is because they have been making efforts towards localization in turn reducing their dependence on H1B visas. This has been a result of high rejection rates that Indian IT companies have been facing over the past few years.
Source: USCIS data; Nomura Estimates; Business Insider
Source: USCIS data; Nomura Estimates; Business Insider
Notably, the top 4 Tier-I companies already have nearly 60% to 70% localization in the US, lowering their dependency on H1B visas. Some of the key localization efforts includes:
- Increased Local Hiring
- Utilizing contractual workforce through US based sub-contracting firms
- Automation and Labour Arbitrage
- Building recruitment pipelines with local colleges
According to ISG, Indian Heritage companies are expected to have negligible short-tern impact on support services, system integrators could see some impact; while the technology vendors who will be the most impacted may increase high-end talent use outside the US.
Source: ISG Index 2Q20
In the post earnings call by Infosys, COO Pravin Rao commented, “On the H1-B visa, …various independent studies have clearly demonstrated the value that Indian IT service providers bring to the US economy and how they make the American companies very competitive. Having said that, in the short-term, we don”t see any impact”
According to Shivendra Singh, VP & Head, Global Trade Developments, “More than these (Indian IT) companies, what would really get impacted from this ban is the American economy’s recovery from the pandemic”. As he stressed it’s no more about cheap labor but more about the niche skills that these H1B visa holders bring to the table.
Also, if the rationale of the ban is unemployment, the numbers don’t support the ban on IT segment. According to Singh, “Unemployment numbers in IT, where more than 70% of H-1B visas are issued, has declined from 3% in January 2020 to 2.5% in May 2020, whereas the numbers for other services have increased from 4% in January to 13.5% in May 2020. So, if the rationale was unemployment, then it isn’t right to restrict segments with low unemployment”.
Overall though, the data shows no major challenges in the short-term, but if this ban is extended to – renewals of visas or in terms of the timeline; it could have an adverse impact on the segment as costs and margins might get impacted. However, this again is dependent on how demand shapes up in the US in the coming quarters and what is in store for US fall elections. Till then it’s more of a wait and watch for Indian IT companies.
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