US visa fee hike: arrogant and reckless
by Virendra Parekh on 18 Aug 2010 8 Comments

The alacrity with which both houses of the American Congress passed the border security bill speaks volumes about the arrogance, recklessness, insensitivity and opportunism of the US establishment in its dealings with India. If President Barack Obama signs it into a law, as he is likely to, it will be a retrograde step for Indo-US relationship.


The bill, styled as Emergency Border Security Supplemental Appropriations Act, seeks to raise $600 million for sending extra men to the United States’ border with Mexico, where politically sensitive illegal immigration has proved difficult to control. That extra expenditure was supposed to be funded from the country’s federal stimulus spending programme. Instead, the money will come from raising the cost of work visa (H-1B and L-1) applications originating from a handful of foreign corporations by $2000 per visa.


More than securing the Mexican border, the idea is to punish foreign companies which “exploit US visa programmes to import workers from abroad.” Indeed, the bill itself specifically names four Indian companies (Wipro, Infosys, Tata, and Satyam) in this respect. The bill’s sponsors claim that these companies basically “domestically outsource” jobs in information technology to temporary workers from India. Rough estimates suggest that Indian companies may end up shelling out $200-250 million a year, which will affect their margins.


One can understand the compulsions of the American legislators. The move is inspired by Senators with an eye to the mid-term elections in November, when the incumbent Senators will face the wrath of the jobless. They must be seen to be doing something to protect American jobs. That is why support for the bill cut across party lines. Democrats expected Republicans to filibuster and stop the passage of the bill. But Republicans also gave in to this potent mix of protectionism and populism, because they too are vulnerable at the hustings. Giving Indian IT companies a hard time costs little to US politicians, especially in an election year.


As a matter of fact, Indian IT majors have created tens of thousands of jobs in the US. Infosys alone has 12,000 employees in the US, including about 1,300 US citizens and permanent residents. In one year, the company intends to hire another 1,000. Similarly, about 5 per cent of MindTree’s strength is in the US, of which 30 per cent are locals or green card holders. India’s largest IT services firm, TCS, has grown the headcount of its Cincinnati centre to 350, and is hiring locals from campuses. Since 2004, TCS America, the subsidiary of TCS, has invested around $135 million in Ohio, Michigan, California and New York.


Then again, contrary to popular belief, H-1B visa holders constitute an insignificant number of jobs in US. According to a March 2010 report by a non-profit public policy group, National Foundation for American Policy (NFAP), only 0.06 per cent of the American labour force was H-1B visa holders for the financial year 2009.


But such is the pressure on American politicians at a time of economic decline and a shrinking job market that they are lashing out indiscriminately. One Senator described Infosys Technologies, one of the finest corporate entities not only in India but in the entire world, as a ‘chop shop’. For who do not know, chop shop is a slang phrase used for an illegal location or business which typically dismantles stolen automobiles for selling them as parts [the gentleman subsequently clarified that he meant meat labour, ie., establishments that exploit cheap labour]. President Barack Obama himself set the tone by frequently referring to Bangalore as a metaphor for America’s economic woes.


This explains the glaringly discriminatory way in which the measure has been worked out. Indian IT services companies use about 12 per cent of H-IB visas in a year, while the rest are used by Microsoft, IBM and Accenture. Yet, as per the bill, higher visa rates will be payable by an Infosys if it wants to bring in an engineer, but not by an IBM if it wishes to act similarly. This is because the higher rates will be payable only by those firms in the US which have more than 50 per cent non-US workers. So, a US headquartered firm which naturally will have more than 50 per cent US workers on its rolls will be able to bring in significant numbers of temporary IT workers from India at half the visa costs. So much for America’s commitment to globalization and free trade!


American law makers may think that it is very clever of them to squeeze Indian companies in this manner. But the move betrays a fundamental lack of understanding of how the modern world economy works, and even what the foundations of America’s continuing prosperity are. Indeed, it will harm US interests also. For much of the last two decades, US firms have been able to maintain a global competitive edge by accessing cost-effective information technology delivered mainly by the Indian IT sector. This has been a win-win situation for both.


The short-term impact of the new visa rates will be to make Indian IT vendors seek higher prices, which they are likely to be able to get as global demand for IT services is reviving. Infosys CEO and MD S Gopalakrishnan has said cryptically that this (fee hike) is across the industry and something that is across the industry typically gets added to the cost at some point.


In the longer run, US firms will urge vendors to deliver more services offshore, that is, not post engineers at client sites, but at delivery centres around the world. There is nothing definite in the proportion of IT professionals who have to be placed at client sites. In the age of cloud computing when virtually every IT resource is accessed via the Internet and plummeting video conferencing costs allow you to easily see and talk to the person delivering your IT solution from thousands of miles away, raising the incentive to offshore functions is foolhardy.


Moreover, if onsite work by foreign workers is pushed out, the US government will lose around $1 billion that Indian firms pay as social security contributions for their skilled workers temporarily stationed in the US. These contributions are a massive net gain for the US as most of the workers do not stay back to enjoy the benefits of the social security payments made for them by their employers. Indeed, if H1B visa fee is raised, the least the US government can do is to stop this forced contribution to US social security funds.


In the last two decades, the US has emerged as the global hub of innovation and conceptualization of new technology. This is the core strength of its economy. If it wants to retain this strength, it must welcome everything and everyone that raises productivity and competitiveness of its industries. Petty, short-sighted protectionism can only dull its competitive edge and hurt its long term interests.


The author is Executive Editor, Corporate India, and lives in Mumbai

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