In recent weeks, there have been signs of a thaw in India-US relations. But the Donald Trump administration’s announcement of raising the H-1B visa fees is a setback — it effectively targets Indians, by far, the biggest beneficiaries of the programme. It’s clear that labour mobility and services are the latest targets of America’s protectionist policies, which have, till now, used tariffs to repress the goods trade. Both ends of the employment spectrum are now under pressure — tariffs on goods have a bearing on low and semi-skilled jobs, while the visa fee will impact high-skilled IT jobs. Trump’s latest salvo will, no doubt, cast a shadow over the India-US trade talks — Commerce Minister Piyush Goyal is slated to visit the US in the coming days.
The Trump administration may well believe that IT firms have “manipulated the H-1B system”. But the move will have wide-ranging consequences for the US economy as well. Ensuring cost-effective labour replacement will be difficult for US companies. The demand-supply mismatch will put pressure on firm margins. More critically, skilled migrant workers form the core of the US knowledge and innovation ecosystem. As University of California economist Giovanni Peri has pointed out, 26 per cent of US-based Nobel Prize winners from 1990 to 2000 were immigrants. Stuart Anderson of the National Foundation for American Policy and Michaela Platzer of Content First, LLC, have also shown that between 1990-2005, 25 per cent of founders of public venture-backed US companies were immigrants. As companies are now unlikely to fork out $100,000 for each visa, talent may simply move to other, more welcoming parts of the world.
The visa fee hike will impact operations of both American and Indian businesses — Indian IT majors like Infosys, TCS, HCL and Wipro have the most H-1B staff on their payrolls, as do US tech giants like Amazon, Microsoft, Meta, Apple and Google. The move will disrupt onshore projects of Indian tech companies. The Indian IT sector, already confronted with an uncertain global environment and grappling with the fallout of increasing adoption of AI, has its task cut out. A reduced flow of migrants could also have implications for remittances to India — the US accounted for 27.7 per cent of all remittances to the country in 2023-24. But there could be some silver linings. The visa restrictions could provide an impetus to India’s Global Capacity Centres. Britta Glennon of the Wharton School of Business has shown that restrictions on H-1B immigration result in increased foreign employment, with firms opening more offices and hiring more people. Such an expansion tends to be concentrated in Canada, India, and China. Indian policymakers and the industry have no time to lose. While India and other countries can do little to influence the ideological foundations of the American discourse on immigration, the question is what can be done domestically. Can the innovation hubs that power the US economy be replicated in India? Trump may, hopefully, soften his stance. The market, hopefully, will push him to do so. But hope, when it comes to Trump, is no strategy. India’s IT sector leaders have formidable talent, they need to look beyond their cost-plus, labour arbitrage model, get better at creating talent and nurturing an enabling ecosystem.
