The US President, Donald Trump in an executive order has imposed a temporary ban on all the work visa programs and issue of green cards till the end of 2020. This move may not impact the Indian IT industry much as some think.
The freeze on work visas won’t have an impact for a limited period of time. However, that could change after the December 2020 deadline.
Read on to find out more…
IT Industry Might Receive a Massive Hit If Ban Is Extended Beyond 2020 End!
Japanese brokerage firm Nomura believes that any indication of extending the curb beyond December could spell difficulties for Indian IT companies like Tata Consultancy Services (TCS), Wipro, Infosys, HCL Technologies, Tech Mahindra and Cognizant.
Another factor that could make things more difficult is if, in addition to new visas, the renewal rate of visas is also hit.
Nomura said in its report, “We have already seen a sharp increase in rejection rates for both new visas and renewals over the past 5 years.”
Nomura also pointed out that the new visas only account for less than 5% or less of the overall headcount in the US for Tier-1 IT service firms. Hence, even if H-1B visas are freezed, it impacts the company’s needs at a minimal level. It said, “We do not see a material impact on India Tier-1 IT from the executive order.”
According to NASSCOM, the restriction on H-1B visas will affect the US economy and worsen the burden caused by the COVID-19 pandemic. It will surely hamper the American companies from accessing the talent they need from overseas, Indian companies don’t seem to be too stressed.
Tech Mahindra’s CFO, Manoj Bhat, told Business Insider, “From a near or medium-term perspective, we don’t see much of an impact because of current situation and travel restrictions.” Movement is largely restricted during the ongoing COVID-19 pandemic, even if one was to obtain an H-1B visa — there would be no way to travel to the US with international flights locked down.
The key indicator to watch out for is any indication from the US to extend the ban on the visas beyond December 2020.
Indian IT Firms Might Increase Localisation!
Over the past 5 years, with H-1B denial rates increasing most Indian IT services companies were already focusing on localisation.
The top 4 Tier-I companies already have nearly 60% to 70% localisation in the US, which lowers their dependency on the overseas talent and hence the H-1B visas.
Bhat said, ““With the current environment I do believe there is more availability of the talent in the US even local as well as resident visa holders.”
With the restriction of handing out H-1B visas, the key indicator to watch out for will be the renewal of these visas will bear an impact.
According to Nomura, any further increase in rejection rates could lead to Indian IT services companies sourcing talent either through subcontractors or increasing localisation even further — which is less likely to be an issue as the unemployment rates in the US are currently high. The report stated, “However, this could lead to an increase in costs, as locals are 20% to 25% more expensive compared to H-1B.”
Gartner has already lowered its forecast for worldwide IT spends by 8% in the current financial year. Nomura expects there to be a 3% to 5% decline in revenue specifically from the US. This means the need for new visas will be further drummed down.
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