Indian IT services is traversing a tough period. The business, which had witnessed turmoil primarily fuelled by macroeconomic conditions, is now facing challenges such as protectionist policies and shifts in technology, besides sector-specific hurdles.

First in a slew of protectionist measures was the proposed overhaul of the H-1B visa by the Donald Trump administration. H-1B is the short-term visa used by Indian IT companies to send employees to work in a client’s location in the U.S.

The U.S. President has signed an executive order for an overhaul of the visa system. Senator Zoe Lofgren had tabled a bill that was aimed at raising the minimum salary of an H-1B worker to $130,000 from $60,000.

“Although... refining the proposed measures into real executed actions will take time, any drastic change to visa administration, regulation, or legislation that aims to restrict free movement of resources to where they are most needed will bring harm to almost all U.S. verticals, especially IT and IT services,” said Hansa Iyengar, senior analyst, large enterprise services, Ovum in a research report.

The anti-outsourcing sentiment in the U.S. was primarily due to a notion that Indian IT firms are violating visa regulations and taking away jobs from locals. The rise in unemployment after the 2008 financial crisis also acted as a catalyst in the U.S. for the anti-outsourcing campaign get louder. This has also engendered a string of lawsuits against Indian IT services majors in the U.S. for alleged visa violations.

In 2013, Infosys had paid $34 million after a federal investigation found visa misuse by the company. In 2015, there was a separate investigation by the U.S. agencies against TCS and Infosys for visa violation in an outsourcing contract involving utility firm Southern California Edison in which both firms were freed of charges.

North America contributes to about 60% of the total revenue of Indian IT companies.

“Global delivery models are deeply embedded in almost every business globally and it is impossible to suddenly ‘get rid’ of outsourcing,” wrote Ms. Iyengar. “Any changes that do occur... will be for curbing the abuse of the visa norms that is rampantly done by body-shopping companies.”

According to the U.S. Citizenship and Immigration Services, H-1B applications for 2017 fell below 2,00,000 for the first time in five years. It received 1,99,000 applications in 2017 compared with 2,36,000 in 2016. About 85,000 visas are granted annually in a lottery system.

U.K. follows suit

Another major market for Indian IT, the U.K., too decided to impose restrictions on work visas. The U.K. government scrapped the Tier-2 short-term visa category used by Indian IT companies to send software engineers to work on projects there. According to Nasscom, the industry’s apex body, there are about 30,000 Indians in the U.K. in that visa category.

Other countries like Singapore and Australia are also imposing visa regulations. Australian Prime Minister Malcolm Turnbull announced the scrapping of the Australian 457 visa programme that allowed Australian companies to hire Indians in skilled jobs.

“While India continues to consolidate its position as the global hub for IT-BPM services, due to several factors, there is a concern on the future growth opportunities in the industry,” said Sangeeta Gupta, senior vice president, Nasscom. “We believe that these uncertainties are bottoming out,” she said.

The IT industry body has raised questions about the regulations and said that the long-term view for the industry is bullish and that the industry is on track to meet the targets it has set for itself for 2025.

The industry body, along with member companies, has been working with government stakeholders from India and the U.S. to raise the issues on the right political platforms. As per Nasscom, only 6 firms of the top 20 H-1B recipients were Indian. The Indian government too has raised the issue with the U.S. administration.

Many companies have also started putting in place measures to even out the pains anticipated due to visa curbs.

For example, companies are ramping up local hiring in the U.S. to help mitigate risk arising from regulations.

The country’s second-largest IT services company Infosys said it continued to invest in the local communities including hiring local American top talent, bringing education and training to shrink the skills gap in the U.S.

Its rival Wipro also said it is planning to increase local hiring in the U.S. and intends to have 50% of its employees in the U.S. as locals by Q1 FY18.

Meanwhile, TCS has decided to rely on more less visa-dependent business model.Talking about the challenging visa regime in U.S., U.K. and Australia, TCS HR head Ajoy Mukherjee said, “...[given] the kind of work we do and the kind of demand, talent is not available and it’s a fact. So, we are educating people there to create the skillset. The work will move from place to place. The fact is that we have to hire locally to move away from the visa-dependent business model.”

When asked if the industry failed to lobby against U.S. visa cuts, C.P. Gurnani, CEO, Tech Mahindra said, “I don’t think it’s fair to say that. Whatever you see here are Mr. Trump’s election promises. Who do you lobby [with]?. Nasscom is very active in this area.”

Tech Mahindra is planning to hire more locals. “About 30% of our workforce in U.S. or in Australia are local citizens. If the skills are available, the first choice is local. The cost is less if we hire locally. Its not that Indian engineers are fighting to go there. Half the time we have to persuade them,” he said.

(with inputs from Piyush Pandey)

(This article first appeared in The Hindu dated May 1, 2017)

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