On top of $1-bn hit, Indian IT firms’ visa costs up 4-fold
It is unfortunate that despite prime minister Narendra Modi taking up the issue with US president Barack Obama, the US Congress has still decided to go ahead and double the fees on H-1B and L-1 visas used by Indian IT professionals – the move is likely to cost the industry over $400 mn per annum, up from around $100 mn right now. While the earlier fee was charged for visa applications, the new charge is to be levied on visa extensions as well. And while the original visa fees, brought into effect for a period of 5 years in 2009, was supposed to be for financing fencing of the US border, the current fee is to be used for the healthcare needs of the 9/11 victims as well as for a biometric tracking system over a 10-year period – no doubt, these are worthy causes, but it is the equivalent of asking US firms to pay a special charge to fund the costs of Swacchh Bharat, a programme quite dear to the present government. Unlike several other attempted Bills to restrict visas for Indian professionals or to hike fees which Indian IT industry was confident it could fight, the current charges are part of a larger omnibus appropriations Bill which has to be passed if the US government is not to shut down – so there is no question of it not being passed into law.
The quadrupling of US visa costs is rubbing salt over injury since, in addition, the Indian IT industry pays $1bn per year in the form of social security payments for Indian employees who, because they do not stay on in the US, do not reap its benefits – over a period of 15-20 years, this adds up to around $10bn. Resolving this through a totalisation agreement between India and the US has been discussed between both Modi and Obama as well as by commerce minister Nirmala Sitharaman and her counterpart in the US government, but remains stuck. While the US has been quick to raise its demands with India – Obama called Modi to enlist his support when the US wanted to get its way in Paris to junk its historical carbon obligations as well as to make climate funding voluntary instead of mandatory – India’s legitimate demands seem to be getting the short shrift. This can hardly be called a partnership.
The imposition of a special fee by the US Congress that effectively doubles the charges for H-1B and L-1 visas could cost IT firms an additional $400 million annually. The special fee of $4,000 has been levied on certain categories of H-1B visas and $4,500 will be charged for L-1 visas over a period of 10 years. The money generated will be used to fund a biometric entry and exit tracking system as also health screenings and treatment for 9/11 first responders.
Nasscom termed the imposition irrational, discriminatory and short-sighted. The IT trade association believes there’s a growing protectionist trend in developed countries like US that wants countries like India to adopt a more liberalised trade and business environment. “This move is contrary to President Obama’s stated support for continued openness and ease of access to the US market by Indian service companies and his advocacy of continued openness of the Indian market to US companies,” Nasscom said in a statement.
H-1B and L-1 visas are work permits that are crucial for Indian IT companies to be able operate in the US, by far the biggest market for most of them. In the case of Tata Consultancy Services, for instance, the US accounts for 51% of its revenue, while for Infosys it is even larger at 63%. In the six months to September, TCS earned a revenue of $4.2 billion from the US while Infosys made $2.9 billion.
While Indian IT firms are the biggest recipients of the 65,000 H-1B visas allotted annually by the US, they are also provide a large number of jobs.
In a report released in September, Nasscom noted Indian that IT companies were providing more than 4 lakh jobs in the US, of which around 3 lakh are held by either US citizens or permanent residents. Indian IT firms have also have invested more than $2 billion in 2011-2013 and paid out $22.5 billion in taxes to the US Treasury in those years, the report said.
According to myvisajobs.com, the top three Indian IT companies — TCS, Infosys and Wipro — have together filed for 46,277 Labour Condition Applications (LCA) for H-1B visas in FY14. Visa costs account for an estimated 1-1.5% of an IT company’s revenues, so any increase on this account will have a direct bearing on operating margins. The new $4,000 fee would apply to companies that have at least 50 employees with 50% on an H-1B or L1 visa. These software providers would need to pay a fresh fee of $4,000 for H-1B visas and $4,500 for L1 visas.
A senior executive from a top IT firm regretted the measure, saying driving up costs would merely hurt access to top-quality technology at a time globally companies are looking to become more efficient.
“The higher costs of hiring or contracting for IT services will force more US companies to considering moving IT operations overseas, thereby reducing American jobs and tax revenues,” Nasscom said. Sanjoy Sen, doctoral research scholar, Aston Business School, UK, said, “The increase in outsourcing visa fees to fund the James Zadroga 9/11 Health and Compensation Act is an interesting application of what economists call the ‘Robin Hood effect’, normally seen in developing countries, now being implemented in one of the world’s most developed countries and largest free market economies. It is obviously timed to play to the US pre- election sentiment.”
** What H1B/L1 costs for industry : $100 mn per annum
** New H1B/L1 costs for industry : $400 mn per annum
** Current payout to US social security : $1 billion per annum
** Historical payout to US social security : $10 billion over 20 years