The H1B visa suspension by the US government will cost Indian IT firms $160 million and have a marginal 0.25-0.30 percent impact on their profitability, CRISIL, a domestic rating agency, said on Monday.
US President Donald Trump has suspended entry of certain foreign workers till the end of this year in the face of the Coronavirus Pandemic and the resultant job losses due to the economic crisis that resulted.
This has impacted a large number of IT professionals who receive three-fourth of all H1B visas issued every year. People holding H-2B, H-4, J-1, J-2, L-1, and L-2 visa holders will also be denied entry.
Crisil, however, said that the marginal impact will be over and above the up to 2.50 percent decline in IT firms’ profits because of the COVID-19 pandemic.
Indian IT firms have gradually reduced dependence on the H1-B and increased local hiring in the US, the Indian subsidiary of American company S&P Global said in its report. The constant threats of withdrawals of H1-B visas have led the IT companies to find alternatives. The US approved only 6 percent in 2016 and 39% in the first half of fiscal 2020.
Loss Due To H1B Visa Change
Also, the new rules for visas apply to new applicants (visas issued till December 2020), not for renewals.
The IT companies have healthy balance sheets and strong liquidity, which will see them through the crisis, CRISIL said.
“New H1-B visa issuances contribute less than 5% of the US onshore workforce of the top 5 listed Indian IT firms, which account for 60% of the industry revenue,” said Anu Sethi, Senior Director, CRISIL Ratings.
“On the other hand, the share of local hires in their US onshore employee mix has steadily increased from 30-35% in fiscal 2017 to about 55-60% in fiscal 2020,” he noted.
“And with firms aiming to increase the share of local talent, especially with digital skills, the transition impact is expected to be marginal for them,” he said.
The US wants to change the present lottery-based issuance of H1-B visa to a merit-based one. The current system caps it at 85,000.
The criteria for capping under the merit system may be decided on quantum salary.
“Assuming employee requirements through new visa approvals (6,137 units in fiscal 2019) are completely met via local hiring and considering a 25% premium for local hiring over the H1-B route, the additional cost burden on IT firms may not exceed Rs. 12,000 million ($160 million),” CRISIL said.
“Additionally, with a higher share of employees working from home and with continued restrictions on mobility due to the pandemic, the onshore requirements of IT firms are likely to be lower,” said Sameer Charania, Director, CRISIL Ratings.
“Further, IT firms are expected to re-negotiate the onsite requirements with clients until the industry witnesses a recovery in discretionary IT spending,” he noted.