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THE SCALING DOWN by the United States of the annual H1B visa cap from 1,95,000 to 65,000 with effect from October 1 may not leave India's software industry unduly perturbed in the near term. No doubt, the apex software association, Nasscom, will feel disheartened that its public relations effort to ensure that the higher visa limit is retained has not borne fruit. But it can take heart that by any yardstick the task was tough. After all, it has been apparent for some time that even if the US economy recovers, Silicon Valley may be heading towards a `jobless recovery'. With the clamour over the loss of employment opportunities for American professionals assuming serious political overtones in an election year, the US Government set the visa cap.

However, this may not upset the strategies of Indian software majors for several reasons. First, following the US slowdown, the utilisation of H1B visas in 2002 and in 2003 by the software industry has been considerably lower than the new cap. Increasingly, Fortune 500/Global 1000 companies in the US are moving jobs to offshore locations such as India, and the trend is likely to gather momentum. Finally, for frontline and second-rung software companies, L1 visa (intra-company branch transfers) has served as a good alternative to H1B visas; there is no cap on the issue of L1 visas. Slowly, but steadily, as the technology focus of Silicon Valley shifts from `innovation' to `execution', its powerbase is also moving to the developing world. And India has been at the forefront of this tech-tonic shift. No wonder, global multinational vendors, such as Accenture, IBM Global Services or EDS, have such grand scale-up plans in the Indian market. It is also compelling logic for captive back-ends of multinationals such as SAP, Microsoft, Dell or Oracle. With competitive economics at play, these companies may expedite their offshore plans if the US economy continues as now.

These are indications that outsourcing is a tide that may not turn, even if the US economy manages a significant recovery. But with this reduction, the costs associated with handling big-ticket deals may inch up and the pressures on margins accentuate in the medium term. To keep American clients at ease, frontline Indian companies will be forced to set up near-shore development centres, in Canada or Mexico, or recruit foreign nationals to man onsite development centres or higher-end work. The rising costs on this account may hasten Indian companies to set up development centres at other lower-cost locations such as China.

There are incipient signs of restrictions being clamped on L1 visas too. A Bill introduced recently in the US Senate to set a ceiling on L1 visas and restrict their use for specific purposes is a cause for concern for the Indian industry. Nasscom, in association with the Government, will have to redouble its efforts to sensitise the US Congress about the benefits of outsourcing and, thereby, ensure that the L1 visa window is kept open without limits. Otherwise for investors worldwide, the Indian software industry will shift from a `margin' to a mere `volume' play.

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