Tech stocks took a beating Tuesday and the National Association of Software and Services Companies (NASSCOM) said the US Bill proposing the High-Skilled Integrity and Fairness Act of 2017 to more than double the minimum wages for H1B workers from the current $60,000 to $130,000, and to prevent high skill jobs from going to non-US citizens, will pose a big challenge to the Indian information technology sector.
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The Zoe Lofgren Bill, introduced in the US House of Representatives, is a long way from becoming law but it does pose dangers to Indian IT companies which receive the largest share of the 65,000 H1B work visas issued by the US every year, NASSCOM said in an official statement.
The Lofgren Bill is the first introduced in the US since Donald Trump took charge as President on January 20. Earlier, on January 4, two Republicans from California, Darrell Issa and Scott Peters, had tabled a Bill called the Protect and Grow American Jobs Act in the US Congress to raise wages for high skill jobs in the US to $100,000 per year from $60,000 and to make Master’s degrees mandatory to qualify to work with H1B visas in the US.The Bills are basically intended to prevent companies from using low-cost foreign workers to do high-skilled jobs in the US. “The Lofgren Bill contains provisions that may prove challenging for the Indian IT sector and will also leave loopholes that will nullify the objective of saving American jobs,’’ NASSCOM said.
“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,’’ NASSCOM president R Chandrashekhar said in a statement.
The High-Skilled Integrity and Fairness Act of 2017 looks at a market-based system for allocation of visas to companies willing to pay more than double the wages calculated by a survey. “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 higher wage level would have ripple effects for many other industries including nursing, engineering, life sciences, and others,’’ Nasscom said.
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Given the sensitivity of the issue and the fact that Bills have to go through multiple stages before being enacted, IT companies preferred not to comment on the matter on Tuesday.
Madhu Babu, research analyst-institutional equities at brokerage house Prabhudas Lilladher, said a Bill takes an average duration of 260 days in the US to become a law. However, the relatively lower wages paid by Indian companies compared to their American counterparts could raise concerns under the proposed amendments.
“The Section 6 clause in the Bill aims to give preference to H1B visas sponsor companies which are giving higher wages to the applicants. We note that companies like Apple, Google pay much higher compared to Indian IT counterparts as they are product companies and recruit a much creamy skill set through H1B visas. As per this clause, these vendors would have a better chance in getting H1B visas as per this process in the Bill. Hence, removal of random lottery and introduction of market-wage based criteria for shortlisting can be a serious risk in our view,” Babu said.
As of 2015, Indian IT companies were the top users of H1B visas issued by the US, with TCS at the top with 4,674 new visas for its employees during the year.
Analysts also said Indian software companies could be forced to weigh in the option of hiring locally in the US to control additional costs.
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“From the Indian companies’ perspective, it could mean that the wage limit will have to be doubled, but from a US company’s point of view, it could mean that shortage of talent could be there. I think Indian companies are still looking to see how their projects are impacted, but one of the options they may be forced to look at could be to hire more local talent in those countries,” said Surabhi Marwaha, Tax Partner, EY India, adding that companies will have to do a cost-benefit analysis of creating a mix of on-site and off-site hiring for US clients.
Another alternative, as suggested by an analyst, is a move towards automation of software services. “Overall sentiment on the Indian IT companies of this would be negative, but one alternative going ahead for them could be resorting to automation. Of course, they will have to see what jobs can be replaced by automation, and take a call accordingly,” an analyst with a domestic brokerage said. One direct and immediate impact if the new rules come into place would be rising costs for IT companies.
“Depending on the companies, they could easily witness around 60-70% rise in the salaries of the H-1B visa dependent workforce, and hence have significant impact on the net profit of the companies. However, the Bill is yet to be passed and most of the companies are looking at mitigating the risk through increasing local recruitment, more off-shoring, moving offices to low-cost states. Thus, the real impact will be difficult to pin down and would depend upon the time when it actually gets implemented… which, according to us, could take time,” said Sarabjit Kour Nangra, vice-president research-IT, Angel Broking.