US senate move on limiting H1B workers may hurt IT firms

The Indian IT industry, which recently lowered its growth projections on the back of a slowing economy, sees no immediate impact of the recent US Senate vote to prohibit banks, that are bailed out, from replacing laid-off workers with foreign guest workers (read H1B workers).

The situation, however, would hurt the fortunes of Indian IT firms if the amendment becomes policy since the top 10 H1B visa list is made up largely of India-based firms that provide outsourcing services, including Infosys Technologies, Wipro and Satyam Computer Services. The deadline for companies to request petitions for new H-1B visas is April 1. Both US (read Silicon Valley) and Indian companies have repeatedly stressed the need to raise the cap, which was reduced from 195,000 to 65,000 two years ago.

However, Senators Sanders and Charles Grassley (a well-known H1B opponent) recently introduced an amendment that would require bailed-out banks -- where there have been layoffs -- to hire only Americans for two years. This was accepted by the US Senate a day after it was revealed that Americans lost almost 600,000 jobs in January. The amendment, though, has to go 'reconciliation' (a legislative process) before going to Congress and finally the President before it becomes policy.

It is feared that these banks (bailed-out with taxpayer money), in a bid to contain or cut costs, would outsource and offshore more work to low-cost countries like India jeopardising the chances of American workers from getting a job. The senate amendment seeks to prevent this, and it could affect the fortunes of the Indian IT industry since outsourcing from the Banking, financial services and insurance (BFSI) sector accounts for almost 40 per cent of the sector's revenue.

"Wall Street caused the crisis, millions of people lost jobs, including 100,000 in financial institutions. Now they want to bring in foreign workers," Senator Bernie Sanders said in a release. It is feared that the bailed-out automakers too would face a similar diktat. This is another lucrative revenue segment for local IT firms.

Software body Nasscom opines that it's up to American banks to choose whether they need to outsource more work to cut costs. "The wording is very confusing. Besides, one may also remember that it is applicable only to H1B dependent companies (an H-1B dependent employer is one whose workers brought in with that visa comprise 15 per cent or more of the employer's total workforce). We hardly have any such IT firms in India," explains Som Mittal, President, Nasscom.

"There won't be any immediate impact but if the issue persists and becomes policy, then the concern could become grave," cautions Ganesh Natarajan, Chairman Nasscom and deputy Chairman and Managing Director of Zensar Technologies.

The H-1B visa issue has always been a bone of contention but the economic recession has added fuel to fire. Vinu B Kartha, Partner at Research and Advisory firm Tholons says: “There can’t be a complete ban on outsourcing because it is a free market economy but the new administration in the US will make it difficult for those companies do business who are outsourcing their work. Companies will get incentives to not to outsource work like tax refunds and other benefits.”

Analysts say it will be difficult for the Indian IT companies to get new projects and they will now have to ensure that none of their existing accounts are under the purview of law. The slowdown will ensure that only the best qualified people get jobs in the US and this is where the Indian workforce will suffer. “Outsourcing will continue but the Indian IT vendors will have to focus on verticals other than BFSI like telecom, manufacturing, healthcare among others,” explains Kartha.

Incidentally, Microsoft which was among the top 10 firms getting approvals for H-1B visas in the year ended September 30, 2007, also was questioned by Senator Grassley when it recently downsized its US workforce. He called on Microsoft to give preference to American workers over visa-holding H-1B foreign workers during its downsizing.

There have also been fears that President Obama, once elected, would revisit the outsourcing and offshoring story that could adversely affect Indian IT firms. However, analysts note that President Obama has filled some of his top White House positions with people like Senator Judd Gregg and Diana Fareell (ex McKinsey Globa Institute) who not only support expanding the H-1B visa programme, but also see offshore outsourcing as postive for the US economy. McKinsey, a management consulting firm, has published research that argues that offshore outsourcing to low-wage countries brings "substantial benefits" to the U.S. Its studies and reports have been cited by the tech industry in support of the H-1B visa programme.

Observers also note that the amendment isn’t as tough as the one Senator Grassley proposed on February 5, which would have prohibited firms from hiring H-1Bs altogether.