Proposed US Immigration Bill will deny access to visas from 2015 for employers having high share of foreign staff, says Nomura
Moneylife Digital Team 24 April 2013

Nomura believes the most damaging provision of the US Immigration Bill for Indian IT remains the restriction on outplacement of H1 B visa holders at client locations, which hurts outsourcing in a big way

Nomura Equity Research hosted a conference call on Tuesday, with Ameet Nivsarkar (VP,

NASSCOM) to understand how the new immigration bill unveiled by the “gang of eight” US senators could potentially impact India’s IT industry. The proposed Immigration Bill aims to reform border security, employment verification, legalization of illegal immigrants and legal immigration and temporary visas.

 

Key negatives of the proposed Immigration bill

1. No access to visas from 2015 for employers who have high share of foreign staff: According to the Bill, in 2014 companies will be banned from obtaining further visas if more than 75% of their staff are H-1B or L-1 employees. In 2015, the ban applies to companies if more than 65% of their workforce is H-1B and L-1 workers. In 2016, the ban moves to 50%.

Most Indian IT companies have 50%-80% of their staff as H-1B or L-1 visa holders currently, according to Mr Nivsarkar.

 

2. Reduced ability to place employees at customer site: According to the Bill, “an H-1B-dependent employer may not place, outsource, lease, or otherwise contract for the services or placement of an H–1B non-immigrant employee”. This means that employees on H1B visas may be restricted from working at the customer sites, although they can work from global delivery centres. This would require a business model change for Indian IT companies and raise the cost on onsite staffing for projects, according to Nomura.

 

3. Increased visa fees: The bill proposes to significantly increase the fees for employers who are H-1B dependant compared to normal users of the program. Specifically, if the employer has 50 or more employees, and more than 30% but less than 50% of staff are H-1B or L-1 employees (who do not have a green card petition pending), the employer must pay a $5,000 fee per additional worker in either of these two statuses. Similarly, if the employer has 50 or more employees, and more than 50% are H-1B or L-1 employees (who do not have a green card petition pending), the employer must pay a $10,000 fee per additional worker in either of these two statuses.

 

4. Increased lead time for hiring: The bill stipulates that employers post a detailed job opening on the Department of Labour's website for at least 30 calendar days before hiring an H1B applicant to fill that position. This would increase lead times for execution and would reduce competitiveness of Indian IT compared to MNC IT, Nomura believes.

 

Key positives of the Bill:

1. Higher H1B cap limit: The Bill proposes to raise the cap of 65,000 H1B visas (annual) to 110,000 which could go to as high as 180,000 in future years. This is a positive as against the current cap of 65,000, there were around 125,000 visa applicants this year—this forces the Immigration authorities to resort to a lottery system to decide who will receive visas.

 

2. Green card reform: The Bill proposes to exempt certain categories of skilled labour from annual numerical limits on employment-based immigrants—e.g. doctoral degree holders in STEM (science, technology, engineering, and mathematics) field would be exempted. In addition, 40% of the worldwide level of employment-based visas would be allocated to a certain set of people which include holders of a master’s degree or higher in a field of science, technology, engineering or mathematics from an accredited US institution of higher education.

 

According to Mr Nivsarkar, the Bill has been introduced in the Senate and it will first go to a judiciary committee and post that a mark-up committee. At every stage there could be amendments. Post that it is put to vote in the Senate and has a high chance of being passed there since the ruling Democrats have a majority.

 

If passed in the Senate, then the Bill is sent to the House where it goes through the same process. The final compromise bill, which has amendments from both Senate and the

House, is sent back for vote one more time at the Senate and House. If passed, it will then be sent to the president who can either sign it into a law or veto it. There is a possibility for the language to be changed at every stage.

 

If everything goes fine, the Bill can be made a law by October 2013 at the earliest, according to Mr Nivsarkar. The Bill, however, has less chance of being passed at the House since Republicans have a majority there. As well, Mr Nivsarkar noted that the bigger concerns in the Bill are around the fate of the 11 million illegal immigrants and not temporary work visas.

 

According to Mr Nivsarkar, the Bill, if passed, would require a change in the way Indian IT does business currently. Indian IT will have to consider one or a combination of the following options to continue doing business normally:

1. Acquire companies based in the US and increase local staff percentage.

2. Start onsite development centres in Tier2/Tier-3 cities, where costs are lower,

3. Tweak the onsite offshore model so as to increase offshore proportions.

 

Mr Nivsarkar thinks the Bill creates an unfair advantage for MNC vendors against Indian IT players. This is as they would already be in compliance with the 50% local staff provision and hence will not have to do material local hiring or bear increased visa fees with which the Indian IT would have to contend.

 

Top five Indian IT players which secured around 29,000 H1B visas in 2012 (Cognizant Technology Solutions – 9,281, TCS – 7,469, Infosys – 5,600, Wipro –- 4,304, HCL Technologies – 2070) compared to around 6000 for MNC players (Accenture – 4,037 and IBM –1,846).

 

Rejection rates continue to remain high especially for L1 and B1 visa and there has been no material decline in the same, even after the US elections, says Mr Nivsarkar.

 

Nomura believes the most damaging provision for Indian IT remains the restriction on outplacement of H1 B visa holders at client locations, which hurts outsourcing in a big way. This would be followed by the need to comply with the 50% local staff requirement by 2016 in terms of severity. For most of tier 1 IT, it would not be a stretch to meet the 2015 target of 35% local staff in the US. The brokerage believes the visa fee increase of usd10,000 per incremental application for companies having less than 50% local staff, is a minor depressant on margins and could also be potentially passed on to clients. Overall passage of the bill in the current form would be negative for the sector and weaken competitiveness versus MNC IT players and depress margins.

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