In 2007, the company which was then the bellwether for both the Indian information technology (IT) services industry and the country’s stock market Infosys Ltd enjoyed an operating profit margin of close to 30%, almost double that of International Business Machines Corp.
A decade later, the gap has reduced. As Andy Mukherjee pointed out in a recent Bloomberg Gadfly column, “the 10-percentage-point operating margin advantage that Indian companies have traditionally enjoyed over International Business Machines Corp. and Accenture Plc will start to erode.”
He added: “The harsher the new US immigration policies, the faster that gap might close.”
His reference was to events of the past week, when happenings related the US’ visa policies for highly-skilled workers (the H1B visa) threatened to push everything else, including India’s Union Budget presented on February 1, to the periphery. The flap concerns an executive order by President Donald Trump and the High-Skilled Integrity and Fairness Act of 2017, a bill introduced by Democrat Zoe Lofgren (from Silicon Valley). Mint reported last week that either of the two would, if passed, require Indian IT services companies such as Tata Consultancy Services Ltd, Wipro Ltd and Infosys to make significant changes in their business models. Worse, that story added, their operating margins could fall by as much as 3 percentage points.
The changes, if they come (and they probably will, in some form or other), will mean that there are fewer H1B visas to go around, and companies will end up paying more for the people they send to the US on H1B visas. Currently the minimum salary to be paid by companies which have over 15% of their employees in the US on H1B visas – all big Indian IT services companies meet this criteria – is $60,000. That number would go up to $130,000 (according to the bill), although most analysts do not expect it to be raised beyond $100,000. Then, things could get worse. There’s some talk of reviving an old plan to allot more H1B visas to companies willing to pay the most to employees. Interestingly, this was part of a 2011 bill, the Immigration Driving Entrepreneurship in America (IDEA) Act of 2011, introduced by (drum roll here), Zoe Lofgren.
In India, response to happenings in the US (as far as H1B visas are concerned) has been varied. There’s a sense of outrage among Indian IT services companies that have always maintained that outsourcing is good not just for them and India but also the companies and countries doing the outsourcing. Led by India’s software lobby group Nasscom, they will put forward this point of view to the Trump administration in the last week of February. It’s one that needs to be put forth, Mint columnist Ravi Venkatesan, the chairman of Bank of Baroda, a director on the board of Infosys and former chairman of Microsoft India, wrote in a column last week: “Indian tech companies have helped create over 400,000 jobs in the US, paid over $20 billion in taxes in the past five years, and made a difference to 120,000 young Americans through various STEM (science, technology, engineering and mathematics) education initiatives. Indian technology companies provide mission-critical support to well over 75% of Fortune 500 US companies including banks, retailers, and car manufacturers. Unfortunately companies, Indian and American, have neglected to effectively make this argument forcefully and persuasively to the American people and lawmakers using robust data. It’s time we did for there is much at stake here for everyone.”
The imminent visa curbs will also push Indian IT companies to transform and move away from the famed “global delivery model” that worked well for them in the past, but has, in recent years, begun to show some wear and tear. In a second column for Mint – that should indicate how important the H1B issue is – last week, Venkatesan wrote: “The boards and CEOs of all these firms understand intellectually that they need to abandon cost arbitrage and shift from “renting out IQ to creating IP”.
Apart from not communicating the benefits of outsourcing and being slow to adopt alternative business models, Indian IT companies, or at least some of them, are also guilty of gaming the US visa regime. Cost, not availability of local expertise, is likely to have played a central role in their decision to fill roles with Indians with H1B visas. Over the years, Indian IT companies have stretched their interpretation of the US visa regime at times, even flouted it at others. A 2011 Mint series highlighted how several Indian companies were sending employees to work in the US on business visas as opposed to H1B visas.
The US’ new H1B policy will also affect the lives of the few hundred thousand Indians in the US on such visas. Many choose to take their families with them, exposing their spouses and children to all the uncertainties that come with a non-immigrant work visa such as the H1B. “You truly understand the turmoil that work visa vulnerability puts you in only when you actually experience it,” says Radhika MB in her book Visa Wives: Emigration Experiences of Indian Women in the US.
Like many other issues, the H1B one doesn’t just affect governments and companies. It affects people.
R Sukumar is editor of Mint and tweets as @mint_ed