US action will singe IT firms

Even as United States president Barack Obama hails India on her 63rd independence anniversary, the new Border Security Act, which raises visa fees substantially, is expected to cost information technology (IT) outsourcing firms in India a whopping $200 million (Rs930 crore) a year.

The US has increased skilled work visa charges by nearly $2,000 (Rs93,000) per person per year. There are 70,000-1,00,000 Indians in the US, nearly all of them IT professionals, working on three-seven year visas, who will be impacted by the change.

The move is targeted at bridging the cost difference between employing an Indian technology worker and a local worker. Indian and international IT firms prefer hiring Indian workers over locals as they are paid $60,000-$80,000 a year, making them around 20% cheaper than Americans.

Killing two birds with one stone, the Emergency Border Security Supplemental Appropriations Act — the bill passed by the Senate on Thursday and signed by Obama on Friday — seeks to channel the extra visa revenues into sealing of the US border with Mexico.

With elections to the Senate and House of Representatives due in three months, feelings have been running high about the influx of illegal immigrants from Mexico.

Indian industry has criticised linking the two distinct issues. “While the need to secure greater funding for strengthened security along the US-Mexico border is understandable, illegal immigration issues are not linked to the temporary movement of skilled professionals,” protested Chandrajit Banerjee, director-general of the Confederation of Indian Industry.

“We have been made a scapegoat,” said Som Mittal, president of Nasscom. “Instead of catching illegal immigrants who break the law, you are trying to tax people who have followed the law.”

According to the US government, around 15 million Americans (10% of the workforce) are looking for work. “Unemployment is largely in manufacturing, construction, and retail. We fail to see how they are related to skilled worker visas,” Mittal added.

As per the act, firms with more than 50% local employees will be exempt from the new charges. Thus, outsourcing giants such as IBM and Accenture, which compete with Indian firms for most contracts, can continue to send Indian workers to the US under the old charges as they also have many local workers there.

However, for Indian biggies like Infosys and TCS, who between them have around 25,000 Indian workers in the US, the 50% mark is a long way off. It is estimated that local residents make up only around 15% of their US deployed staff.

For now, no one expects the extra expense to dent the India advantage of outsourcing giants like Infosys. But the IT industry is definitely worried that Obama’s election rhetoric “Buffalo-not-Bangalore” has started becoming laws. “Our objection is not so much on the costs, but on the principle,” says Mittal of Nasscom.

He pointed out that many American companies derive large profit from the Indian market. “There are tens of thousands of Americans working in India. If protectionism continues, the government of India would also be obligated to respond,” he said.