Over the past two decades, India has become an outsourcing powerhouse. Led by tech giants Tata Consultancy, Infosys, and Wipro, India’s information technology (IT) industry has grown to employ almost four million people, generate $150 billion in business, and account for 20 percent of the country’s exports of goods and services.
Still, with growth comes challenges. There are the challenges of new technologies like cloud computing, predicted to reduce demand for traditional IT work by 30 to 40 percent, and the uncertainties of popular-movements like Brexit that threaten to raise trade barriers in long-standing markets.
Another more pressing challenge facing India’s IT companies has to do with the H-1B Visa Program. For almost two decades, U.S. companies have been contracting with Indian tech companies to send skilled professionals to the United States on H-1B visas. This practice enables Indian companies to underbid other multinational competitors. Presently there are an estimated 350,000 Indian engineers working in the United States under visas.
President Trump and others have criticized the visa program for supplying “cheap labor” at the expense of American workers. Indian firms counter that U.S. companies lack the necessary number of homegrown STEM-skilled individuals to meet their operational needs, and so benefit from access to highly-skilled Indian workers.
A bill introduced in Congress this past week by U.S. Rep. Zoe Lofgren (D-Cal.), called the High-Skilled Integrity and Fairness Act of 2017, is designed to implement a market-based solution that gives priority to foreign companies willing to pay the most to import their workers to the United States. According to Lofgren, the legislation will ensure that “American employers have access to the talent they need, while removing incentives for companies to undercut American wages and outsource jobs.”
The primary concern with the proposed legislation is the steep increase in the minimum salary that foreign companies will be required to pay their H-1B visa holders. Currently the H-1B minimum wage is $60,000. The proposed bill more than doubles that amount to $130,000.
Other challenges on the horizon
Adding to the visa concern is President Donald Trump’s recent moves to tighten rules for hiring skilled foreign workers — something he made very clear in his inaugural speech when he said, “We will follow two simple rules: buy American and hire American.”
A related effort in the U.S. Senate by co-sponsors, Sens. Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.) called the H-1B and L-1 Visa Reform Act. (L-1 visas are used for intra-company transfers.) The act is designed to replace the random distribution, via lottery, of H-1B visas with a process that gives priority to certain types of foreign students: those who earn an advanced degree from a U.S. school, have a well-paying job offer in hand and preferred skills, likely STEM-related. The bill requires “all employers who seek to hire visa holders to first make a good-faith effort to recruit American workers.”
“For years, foreign outsourcing companies have used loopholes in the laws to displace qualified American workers and facilitate the outsourcing of American jobs,” said Durbin. “The H-1B and L-1 Visa Reform Act would end these abuses and protect American and foreign workers from exploitation.”
These proposed changes to the visa programs are already having a negative impact on IT companies, as stocks of major software exporters fell by 4 percent across the board this week. One reason for such a significant downturn is that the United States is the largest market for India’s IT outsourcing. U.S. firms accounts for 60 percent of revenues.
Market analysts say these bills will push software service exporters to hire more U.S. talent, raising costs and in turn increasing automation in an effort to reduce the need for workers — a solution many companies are already pursuing. In a statement to press, Dipen Shah, senior vice president of the Private Client Group Research, Kotak Securities, worried about the severe impact if the bills become law. “All companies will have to bear higher expenditure … and the impact can be quite severe. There will be a severe hit (to) profitability.”
Of course, India’s IT leaders didn’t get where they are by resting on their laurels. They are, in their usual manner, taking steps to mitigate any potential blowback. The National Association for Software and Services Companies (NASSCOM) has already issued several strong statements expressing their concerns about the proposed bills.
NASSCOM is also planning to send a delegation to the United States to emphasize the “contribution made by Indian technology companies to the U.S. economy.” According to NASSCOM’s chief of global trade development, Shivendra Singh, Indian tech companies over the last four years have created more than 411,000 jobs in the U.S. and paid more than $2 billion in taxes.
Market analysts are right to be concerned. The combination of global uncertainty — spurred by the United Kingdom attempting to leave the European Union, and the likelihood of additional nations following suit — a resultant decrease in IT budgets across the board, and the potential changes to U.S. visa programs is a potentially toxic brew.
There is, however, one bright spot — the relationship between President Trump and Prime Minster Modi. For starters, four days after assuming office, Trump telephoned Modi to discuss economic ties and national security. The phone call is even more impressive when you consider that Trump called Modi before calling Great Britain, or any other European nation.
Strong leadership at the top
Both leaders also have much in common. Trump has vowed to “drain the swamp,” and change the culture of self-serving bureaucrats in Washington, D.C., while Modi is focused on running a clean government that puts its citizens first. In just two years, Modi has maintained a strong anti-corruption stance, rooting shady operators out of the telecom, defense and mining industries.
Both men are big on defending their countries from Islamist Jihad, and focused on strengthening their armed forces. India has the world’s fifth largest navy and third largest army, making the possibility of Chinese aggression in the area less likely. The U.S. and India have also signed a number of agreements pertaining to logistics, communication, and security that enable them to work closely together to solve problems while smoothing out any issues that may arise between them.
Perhaps most importantly, Trump and Modi are rightly seen as “men of action.” They both come from successful business backgrounds, with reputations for getting things done in spite of opposition. Modi’s record in two years is impressive, and Trump’s first 11 days auger well for continued activity, if not accomplishment.
Each leader is strongly pro-business and understands the need to develop an economy that fosters innovation and risk taking. Trump has already scheduled a meeting in June with Modi to discuss the potential for increasing trade and direct investment between both countries. As successful businessmen Trump and Modi know how to keep their eyes on the goal while carefully weighing the costs. I’m confident that putting these two leaders in a room will result in the working out of any visa issues to the satisfaction of both nations.