H1B fee increase sends Indo-US relations south

2015 was a particularly eventful year for contentious debates surrounding H1B visas within the context of Indian IT services firms. The last bit of acrimony which had US tech workers fuming was the replacement of IT workers at Disney as well as SCE (a southern Californian utility) in mid-2015 by India's TCS and Infosys respectively. This time around, it is Indian IT services firms and their cheerleaders who are gnashing their teeth.

What has gotten their molars activated is a $1.8 trillion tax and spending bill, signed into law by US President Barack Obama, which included the go-ahead to double the visa fee on H1B (to $4,000) and L1 visas (to $4,500) for companies who had at least 50 employees as well as 50 percent of people on their rosters who are in the US on these visas. H1Bs and L1s are temporary work visas issued by the US to skilled professionals.

The revenue generated from this move, expected to be around a billion dollars per year, would be used to fund a biometric entry and exit tracking system as well as pay for health related screenings and medical care for 9-11 "first responders".

Already, there is the spectre of tit-for-tat measures being plotted and planned behind the scenes, especially since a call between Indian Prime Minister Narendra Modi and Obama on December 16, ostensibly to forestall the bill before it was given birth to, went nowhere.

For Indian IT Services firms, it is a particularly thorny dilemma. On one hand, North America is pivotal to their survival -- around 60 percent of the $82 billion worth of revenue that comes from the export of the sector's services come from there. For many of the companies like TCS, Infosys or Cognizant who work on-site in the US for their clients, the winning of H1B visas is crucial for their survival. Subsequently, the bulk of these visas issued every year are snapped up by Indian firms -- 67.4 per cent of the total 161,369 H1B visas issued in 2014 to be specific.

The Indian industry body representing Indian software firms such as Nasscom and even others such as FICCI are calling the move discriminatory because it will chiefly affect Indian firms and cause a direct hit of around $400 million a year to the industry. Already, drum beats signalling the beginnings of a tit-for-tat trade war are beginning to echo around governmental halls and boardrooms.

WTO Face-Off?

India will first hope to take this issue to the WTO, but contesting what appears to be an onerous fee hike isn't as easy as it would seem. Apparently, trade experts contend that to be able to contest the hike in front of a WTO panel, India will have to first prove how Indian companies are suffering the brunt of the action more than other countries. Before this happens, the issue will be thrashed out at high-level India-US Services Working Group meetings via digital video conference.

Moreover, the Indian Commerce Ministry is pressing for the issue to also be included in bilateral discussions that go on at the India-US Trade Policy Forum, which is the primary vehicle for all discussions related to bilateral trade and investment issues.

Sum effect?

Even though the action may be punitive and part of the pre-election posturing that goes on in the US, the whole thing may not be such a big deal after all considering analysts think that there will be minimal negative blowback from the act.

Still, industry hands are predictably not too thrilled about the development. According to industry body Nasscom's president R Chandrashekhar, "If a job has to be done and we cannot bring in people and they are not available locally, it will increase the pressure on offshoring ... The consequential spinoff that would have accrued to US markets would be lost". Sources say that the Indians are desperate to resolve the issue in its entirety before the elections later this year when the Obama term will come to an end.

Still, if the fee hike remains, will it really capsize the Indian IT outsourcing sector? Some analysts feel that despite all the hand-wringing, it won't really have much of an effect. In fact, "the IT firms will pass the extra money they have to incur on visa fees to their clients," said Sanchit Gogia, Chief Analyst & CEO of Greyhound Research, an independent IT and Telecom Research and Advisory firm.

Plus, according to Gogia, IT firms are not exactly short of revenue streams to absorb the impact of the hike. Vikash Jain of the Boston Consulting Group thinks that if you factor in other variables such as inflation over the last five years, it's not such a big deal after all. "I feel this is largely a sentimental issue," he said.