The new H-1B and L-1 legislation: Bleak future ahead of the Indian IT firms

(This entry was first published in this blog on April 2009 and it is based on the context of that time. It got deleted for technical problems and I am again posting it here.)

Indian IT firms are going to face another major setback as a new bill has been proposed to curb the hiring through the H-1B and L-1 visas. This move by the US government would erode the profitability and competitive edge of many small and big Indian firms who have offices in USA. On April 23, 2009, US senators- Chuck Grassley and Dick Durban, proposed the bill.

The new bill stops IT firms, that already have H-1B and L-1 visa holders, comprising more than half of its office staffs, from hiring further employees through the H-1B and L-1 route. Senator Chuck Grassley and Dick Durban introduced this new law with an end to “root out fraud and abuse and ensure that Americans are give every consideration when applying for jobs.” In October 2008, the US Citizenship and Immigration Services (USCIS) released a Benefit Fraud and Compliance Assessment report which revealed the violation rate is more than a 20% by the companies that use the H-1B visa programme.

Currently, there are several big Indian IT firms that have either branch offices or subsidiaries in USA, where H-1B and L-1 visa holders are working. This new legislation, if passed, would seriously affect their profitability as they would have to hire US citizens or green card holders and pay more money to them.

The main problem for Indian IT sector is that it is heavily dependent on USA. Till date, US accounts for about 40% to 60% revenue earned by most of the Indian IT firms. The H-1B and L-1 visas are non-immigrant visas. The H-1B allows any foreign employee work temporarily in USA. Highly educated people who work in the field of architecture, engineering, mathematics, physical sciences, social sciences and biotechnology are given this visa to work in USA. L-1 visa is also another non-immigrant visa but it has a shorter life span compared to the H-1B visa. The L-1 visa is given to employees of multinational companies that operates in its home country and the United States. Around 25% of the Indian IT firms, under the L1 visa system, transfer their executives, manager and “specialized knowledge professionals” to the United States of America. Contrary to the popular belief that large number of Indians go to USA with the H-1B visas, Nasscom, the premier trade body of the Indian IT firms, said that only small number of Indians get these visas. In 2008, Indian IT firms comprised only 11% of the total visas issued.

Infosys, one of the top IT companies in India, is the largest user of H-1B visa with around 4000 H-1B visa holders followed by Wipro Technologies about 3000. Tata Consultancy Services (TCS) has 3500 L-1 and H-1B visa holders in total. However, TCS has more L-1 visa holders. Before the scam, Satyam Computers had about 2000 H-1B visa holders. Microsoft and IBM are the two major H-1B visa users for Indian employees.

Kamal Nath, Minister, Commerce and Industry, India issued a statement on April 24, 2009, where he severely criticized the legislation and said that such step had not gone in line with the US President’s stand against protectionism at the recent G20 summit and Doha negotiations. Mr. Nath said that the new bill would decrease the competitive edge of the Indian IT firms in USA. In the past decade, IT especially outsourcing, made a huge contribution to the economic growth of India and turning it into an attractive market for USA. On the other hand, American IT firms were able to save lots of money by outsourcing various operations to India. Mr. Nath urged the US lawmakers and business community to make sure that the bill does not create problem in the growing India-US trade relationship.

Well, the move was not totally unexpected. Such a bill was already introduced last year but it was not passed. Now, US economy is badly hit by recession and number of unemployment has already reached an all time high which makes the passing of such legislation very real. Even current US President, Barack Obama, during his election campaign, said that after he would become the President of the United States of America, he would make sure that jobs do not go out of USA. In his first US congress session on February 25, 2009, Barack Obama announced that companies that would not outsource its operations will be eligible for tax breaks. Currently, there are many top American IT companies that have operations in India and this step had already affected their profitability.

A top Indian IT industry executive said that currently a large Indian IT firm employs around 18000 employees at its US branch office of which, only 1000 are US citizens and green card holders. If the firms have to hire more US citizens then it would not be profitable for them anymore. However, there are a number Indian IT firms that are hiring American citizens but the number of American employees is still very small. Tata Consultancy Services (TCS) increased its number of local recruitments in recent years but the number of local citizens hired by the firm is still around 10,000 globally. After the news came out, TCS officials did not comment on the matter.

Som Mittal, President, Nasscom, said that US legislators should go for a comprehensive reform because H-1B visa holders have no relation with job losses in USA. According to Mr. Mittal it is a misplaced idea that the H-1B visa is used to displace American workers. He said that out of the total 85,000 H-1B visas, Indian companies were allocated only 12,000 visas last year. The latest data from US Citizenship and Immigration Services (USCIS) indicate that it received visa applications approximately half the limit for the Fiscal Year 2010. This, according to Mr. Som Mittal, is a clear indicator that Indian companies are not using the H-1B visa as means to replace US workers. Moreover, companies that send their employees under the H-1B visa has an average period of less than two years. Mr. Mittal also said that Nasscom is ready to work with the US government to make sure whether the visas are not abused.

Ganesh Natarajan, former Chairman, Nasscom and vice-chairman, Zensar Technologies, also expressed his concerns over the passing of the legislation.

Mohandas Pai, board member, Infosys Technologies, the second largest exporter in India, said that his company would look at the legislation to understand the terms and conditions.

Pratik Kumar, Executive Vice-President, Wipro Technologies, strongly opposed the bill. He said that the proposed legislation is an antithesis to globalization as it leads to restricted trade practice. Mr. Kumar said that over the year, India had helped US to become competitive in the global market and it benefited both the countries. A reversal of the process would further affect US economy.

Due to economic melt down, there are no new jobs or fresh demand of jobs in USA and this has caused a slump in the number of H-1B visa petitions in recent times in India. Mr. Som Mittal said that only 44,000 H-1B visa petitions have been filed this year.

Related articles:

Business Standard

The Economic Times

Times of India