This time, it is serious

Two legislative initiatives filed in the US Senate in the last month do not augur well for Indian technology majors who depend on H-1B visas. The changes were introduced by veteran senators from both parties including the likes of Dick Durbin, the assistant leader of the Democrats; Charles Grassley, the Republican chairman of the judiciary committee; Jeff Sessions, the chairman of the subcommittee on immigration; and Bill Nelson, a senior senator from Florida.

The reason these proposals are so ominous is that they are expressly targeted against the Indian IT companies. In introducing the legislation, Durbin said, “For years, foreign outsourcing companies have used loopholes in the laws to displace qualified American workers and facilitate the outsourcing of American jobs. The H-1B and L-1 Visa Reform Act would end these abuses and protect American and foreign workers from exploitation.”

Grassley chimed in: “The abuse of the system is real, and media reports are validating what we have argued against for years, including the fact that Americans are training their replacements.”

I have been arguing in these columns that a major shift in the tech visa programme was becoming unavoidable and unless Nasscom publicly renounced all visa abuse and embraced a zero tolerance approach to it, its members would helplessly see new rules adopted that would chip away at these companies’ very business models.

What is shocking is the direction that the new proposals have taken and the intensity with which the public mood has changed. In the 2013 comprehensive immigration reform Bill which passed 68-32 in the Senate but died in the House, the H-1B limit was supposed to rise from 65,000 to 1,15,000; and with a market-based escalator, to adjust up to 3,00,000 new H-1B visas. Nelson’s Bill would reduce the number of visas by 15,000 — at a time when the US economy is booming.

Secondly, the dreaded 50 per cent rule from the 2013 Bill is back in full force. The new proposal dramatically shifts the H-1B corporate beneficiaries from foreign outsourcers to the product-driven, R&D-based technology companies that are based in the US and continue to invest in new product development (Microsoft, Google). It does this by using the percentage of Americans employed by the H-1B beneficiary company as a determining metric to grant visas and not by what the company does. Specifically, a company bidding for H-1B visas in the future should have at least 50 per cent of its US workforce as American (citizens or permanent residents).

This is a severe blow to the Indian IT majors while the outsourcing business model they pioneered will continue to thrive. IBM and Accenture, with hundreds of thousands of American employees in the US, will easily meet the 50 per cent threshold and be able to apply for H-1B visas. But not so the Indian IT companies. In July 2012, TCS put out a chart showing the number of Americans in its global workforce of 2,65,000 employees to be at a little over 1 per cent. While these numbers are surely different today with increased hiring of Americans by TCS in recent years, it will take a long time before TCS can reach 50 per cent levels without severely taking a hit to its India-based labour-cost arbitrage model.

And thirdly, the new proposals bring back the “best and brightest” principle that the original H-1B authors had in mind when the law was first passed in the 1960s. The premise was that US employers occasionally run into situations when they can’t find competent Americans to fill open jobs within their facilities. Rather than let American commerce suffer — causing hardships to customers, current employees and shareholders — the H1B law provided for companies to bring in qualified individuals from abroad to temporarily work in the US.

A US Government Accounting Office (GAO) report from January 2011 said that “over 50 percent of employers requesting H-1B workers between June 2009 and July 2010 categorized their prospective H-1B workers as receiving entry-level wages”, hardly the best and brightest employee pool. The new proposals plug this loophole by using a priority allocation method — and in a curious twist, Indian students who are in the US pursuing STEM graduate degrees will be explicitly preferred in the allocation of H-1Bs over career Indian IT workers without a US degree. Indirectly, this is a plug for US colleges and universities to attract even more international students to come to the US. Last year, international students contributed $31 billion to the US economy.

This last proposal also uses market forces to allocate visas. People who are offered higher wages as specified in their Labor Condition Agreements will henceforth be preferred to those who are offered lower wages — the premise here being that the best and brightest are often paid more.

The Senate proposals are not law yet. There is no indication if the new speaker, Paul Ryan, will bring them up in the House of Representatives. In the past, President Obama has said that he will only consider tech visa changes as part of a comprehensive immigration Bill whose prospects in the current political climate are next to zero.

Nasscom’s best hopes now are that these Bills don’t become law. But if its members are not already making major strategic changes to their global delivery models, they will face the risk of becoming irrelevant — and this is a huge loss to the Indian export sector.

The writer is the managing director of Rao Advisors LLC

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