Net result of curbs: More offshoring

Net result of curbs: More offshoring

V Balakrishnan

India dominates the IT services industry worldwide with $190 billion in revenues contributed by a strong workforce of 4.5 million. IT is still a high growth industry with a huge multiplier effect on the Indian economy. There is no country in the world that can match the scale and quality of talent that India provides.

The key growth driver for the industry is its ability to provide high-quality services at a competitive price using Indian talent from India (offshoring). The need for free movement of resources across countries is key for knowledge transfer and implementation of critical projects. The liberal visa regime provided the required thrust for the industry in its early days and continues to be a key constituent for its growth objectives.

Recently, the US government stopped issuing any more work visas that include H1 and L1 visas till December 2020. The work visas are always an election issue in the US and become a topic for discussion during every election cycle. This move makes a good political decision due to high unemployment levels in the US but is a bad economic one as it is going to hurt US companies more than Indian companies.

Also Read |?Visa freeze to hit US more than India

First, the unemployment level for technology workers in the US is less than 4% and the US tech companies need talent from India for growth. Tech industry is a big growth driver for the US economy with the top five tech companies (FAANG stocks – drawn from US tech giants Facebook, Amazon, Apple, Netflix and Google) having a market cap of more than $ 5 trillion. Almost all big tech companies in the US have opposed this visa move publicly.

Second, Indian companies saw these changes coming. The stoppage of work visas was a Damocles sword hanging over their heads for a longtime. Realising that risk, most of the Indian IT companies had localised their workforce in the last few years. Today, more than 50% of the workforce of Indian IT companies in the US are local citizens. This minimises dependency on work visas substantially. Of course, hiring locally comes with the consequence of increased cost and less flexibility in the workforce.

However, with the US consistently increasing the minimum wage for work visas, it became cheaper to hire locals in certain categories of tech workers. Indian companies also changed their processes to hire, train and retain good talent in the US on a scale over the years. Today, the cost of the local talent is almost at par with the talent sent on work visas.

Third, businesses will follow talent and that is more relevant in a service industry. If US companies are barred from hiring talent from India, they may move their centre of gravity to India. The net result of the restrictions will be more offshoring. The flip side is shrinkage in revenues as per capita revenue for onsite is higher than offshore revenues. Higher profitability and strong cashflows will make the Indian IT industry darling of capital markets, again.

Geography will be history

Fourth, the new normal brought about by the Covid-19 virus makes geography, history. With work from home becoming new normal for the IT industry, it does not make any difference whether you work in a client office in the US, an apartment in the US or an apartment in India. The new normal of work from home substantially minimises the risk of lower visas.

Fifth, the ban is for the new visas and Indian IT companies already have a substantial stock of employees with work visas which minimises any short-term impact.

So, in the larger scheme of things, the visa regulatory change is more a long-term impact rather than a short-term impact. Also, with changing business models of work from home, digital adoption, cloud and AI, the need for physical presence closer to the customer is no longer required. With digital becoming mainstream and with more corporates freely embracing cloud, the need for work visas will diminish over time.

Students to avoid US

There are close to 2,00,000 students from India studying in the US spending more than Rs 80,000 crore every year. Most of them pursue their studies in the US with the hope to get a job after graduation and settle in the US. If there are restrictions in pursuing that dream, then more students will avoid the US and go to countries like Canada, Australia and other Asian countries that have more liberal visa regimes. It will be a big loss for US universities too.

Free movement

Today, the US is spearheading the de-globalisation drive which is not good for the world economy. The global economy thrives when there is free movement of labour, capital and commerce. The US is a country built by immigrants. The best talent from across the world saw the US as a country where they could fulfill their dreams.

The US as a country always recognised merit and embraced global talent providing enough risk capital combined with a vibrant eco system creating great entrepreneurs. The US is a hot bed for young aspiring entrepreneurs as the system recognises merit and failures are celebrated rather than seen as a stigma.

I, for one, believe that the work visa ban is temporary and would change after the election cycle is over. It is purely a political move to appease a section of Trump’s voter-base rather than a sound economic decision.

Politicians all across the world become nationalistic closer to the election cycle only to reverse it after they come to power. Bill Clinton famously coined the phrase “It’s the economy, stupid” during his successful election campaign in 1992. I hope Trump will understand the impact of his decision on the US economy and reverse it after elections.

In the long run, it is only sound economic policies that make a nation great and prosperous. It is economic prosperity that defines global leadership and not brute political power. Globalisation is here to stay and only free movement of labour, capital and commerce can make the world better. We need the world to be more open, liberal and inclusive and hope the US will once again become a torch bearer for globalization soon.

(The writer is former CFO, Infosys)