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Trump adamant on outsourcing

Trump adamant on outsourcing
India's Silicon Valley in Bangalore and Hyderabad's cyber city where major IT giants are located are shivering with uncertainty about their future if the US blocks the H1-B visas as a part of curbing outsourcing. India's software services industry, already facing pressures on profitability is bracing to face the Trump administration's protectionist policies. The National Association of Software and Services Companies (Nasscom), which represents the Indian IT industry, has been keeping its fingers crossed.

President Trump made his intentions clear in his inaugural speech: "We will follow two simple rules: Buy American and hire Americans." Fearing protectionism, India has been lobbying with the Trump administration to spare them their H1-B visas. A Nasscom delegation had been to Washington recently. Indian officials led by Foreign Secretary Jaishankar also visited Washington to lobby with the Trump administration. The Indian argument is that the H1-B visa is a "category of trade and services" which actually helps American economy to be more competitive.

However, Trump has decided to halt expedited processing of H1-B visas last week that has shocked the IT industry. Even as the Indian officials were claiming that their dynamic presentation to the Congress and administration had met with a degree of understanding, the U.S Citizenship and Immigration Services (USCIS) brought the axe down on the expedited processing system which many Indian and American companies use to facilitate the entry. The US government announced on Friday that as of April 3, it would suspend the "premium processing" option, which ensures an application will be reviewed within 15 days at the cost of $1,225. The order came a day after visiting Jaishankar met John Kelly, the Secretary of Homeland Security, and raised the visa issue. The suspension may directly hit Indian information technology majors like Infosys, Wipro, and Tata Consultancy Services.

What is H1-B visa and why is India concerned? It is a type of visa that allows the employers to bring in skilled workers from abroad to the US with needed skills, which would, in turn, boost the U.S. economy. Indian IT service companies use H-1B visas to fly engineers to the US, their biggest market, to service clients. While tech firms claim they use the H1-B visas to hire highly skilled workers, some US politicians complain that IT tech companies misuse and bring low-level IT workers into the US. Trump had bashed this programme during the campaign.

New Delhi is worried because India wants more H1-B visas to boost its IT industry, which is vital for India's growing economy. The IT sector contributes 9.3 per cent to India's GDP and employs 3.7 million people. The US accounts for more than 60 per cent of India's $108 billion in foreign technology and outsourcing sales last year according to the National Association of Software and Service Companies. Indian IT firms service nearly 75 per cent of the Fortune 500.

Even before the visa freeze, Indian IT majors like Infosys, Wipro and Tata Consultancy Services had reported slow growth in 2016. The uncertainty about the future has led to a fall in employment. The US lawmakers have introduced the Lofgren Bill, which proposes the minimum wages being doubled to $130,000. The current H1-B minimum wage of $60,000 was fixed in 1989. Most H1-B visa holders get an average of $1,00,000. This hike in salaries would reduce the flow of Indian IT workers to the US. The draft bill aims to make it difficult to bring foreign workers, and experts say it is likely to deal a body blow to the IT companies.

The US receives nearly 3 lakh applications and issues these visas through a lottery system. Last year about 85000 visas had been given out. Around 60 per cent of them are granted to Indian IT companies. An estimated one million jobs are vacant in the US in the IT sector that American companies have not been able to fill. Of the 12 lakh jobs certified for H-1B visas in 2015, Indian IT firms (Cognizant, TCS Wipro, Infosys, and Mindtree) accounted for 2.54 lakh positions. In 2016, it was 1.72 lakh, as per US labour department records. The Nasscom predicts that the IT sector will grow at the lower end of its revised target in fiscal 2017.

The US receives nearly 3 lakh applications and issues these visas through a lottery system. Last year about 85000 visas had been given out. Around 60 per cent of them are granted to Indian IT companies. An estimated one million jobs are vacant in the US in the IT sector that American companies have not been able to fill. Of the 12 lakh jobs certified for H-1B visas in 2015, Indian IT firms (Cognizant, TCS Wipro, Infosys, and Mindtree) accounted for 2.54 lakh positions. In 2016, it was 1.72 lakh, as per US labour department records. The Nasscom predicts that the IT sector will grow at the lower end of its revised target in fiscal 2017.

So are things going to be hard for the IT majors? Are the Indian companies ready to face the blow and more importantly are the US firms ready to do without outsourcing? If Trump pushes the stringent HI-B visa norms, the Indian IT majors are sure to face a setback, and they should explore ways of softening this blow. They should rework their economics and look at ways to bring down the on-site work.

The first is to adopt a new model of business. At present most of them have business in several places but do not pay taxes anywhere. This has to change. Secondly, as the Infosys mentor, Narayana Murthy has suggested they should employ local Americans even if they had to pay higher salaries, even if it reduced their profit margins. The third is to diversify their markets beyond the US to other countries, but it is not easy.

The fourth is to see how the changes would affect the Indian IT industry the least by lobbying the Congress and Foggy Bottom. They could also go for automating jobs besides seeking innovative technology to remain competitive. They are hoping that during Modi's bilateral visit in May, he might try to soften the blow. But it is an uphill task as Trump is convinced regarding outsourcing. IPA

The third is to diversify their markets beyond the US to other countries, but it is not easy. The fourth is to see how the changes would affect the Indian IT industry the least by lobbying the Congress and Foggy Bottom. They could also go for automating jobs besides seeking innovative technology to remain competitive. They are hoping that during Modi's bilateral visit in May, he might try to soften the blow. But it is an uphill task as Trump is convinced regarding outsourcing.
(The views expressed are strictly personal.)
Kalyani Shankar

Kalyani Shankar

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