Visa restrictions and nationalist sentiments in countries like US, UK and Australia have started to show an impact on on-site delivery of IT services companies in India.
According to a recent report from the Reserve Bank of India, the share of the on-site model of delivery has come down from 25.5 per cent in 2007-08 to 15.5 per cent—a little lower than a sixth of total software and ITES exports in 2018-19. Under the Onsite Delivery Model, IT companies send employees from India to the client’s site in countries like the UK and US.
The situation is more acute in the US where H1B work visa denials have been on an all-time high. US is the largest market for Indian IT services exports.
Data from US Citizen and Immigration Services indicate that top four IT services firms—TCS, Infosys, HCL Technologies and Wipro have seen about half of their work visa applications getting rejected in the calendar year 2018.
For the largest IT services firm TCS, that means a denial rate of 6 per cent in FY15 shooting to 37 per cent during October-December 2018.
RBI data indicates that the share of cross-border supply in exports of software services by India increased substantially at the cost of the overseas commercial presence mode of delivery.
Total export of software services from India rose to ₹8.24 lakh crore in 2018-19, up 16.9 per cent from ₹7.05 lakh crore in the fiscal year 2017-18.
Of this, cross-border supply of software services stood at ₹6.96 lakh crore, which translates into 74 per cent of overall software exports for the year. The share of cross-border supply in 2017-18 stood at 69.5 per cent of overall software exports.
While it may seem to be a positive move for the IT services companies in India but the growth in cross-border supply of software services, which means developing software in India and deploying it in other countries, grew at the cost of commercial presence of Indian IT services firms in those countries, which declined to 12.4 per cent i n2018-19 vis as vis 17.4 per cent in 2017-18.
Foreign affiliates of Indian companies continued to augment cross-border services provided by their parent companies in India, RBI said, although software services provided through the commercial presence of foreign affiliates declined by 21.5 per cent in 2018-19.
Despite actuve attempts from Indian IT services companies to diversify their market presence, almost half of the software business by foreign affiliates of Indian companies was provided in the USA, followed by the UK.
US comprised of 61.2 per cent of overall software services exports from India in 2018-19, as per RBI data. The UK came distant second at 11.7 per cent overall revenues. Both US and UK political environments have been disconcerting for IT services firms like TCS, Infosys and HCL Technologies, which continue to depend heavily on these two markets.