The United States has introduced a significant change to its H-1B visa program, implementing a $100,000 fee per application along with higher prevailing wage requirements. This move is set to have far-reaching implications for the global tech industry, particularly impacting Indian IT companies and their workforce.

Key Points of the New H-1B Visa Policy

• A $100,000 fee per H-1B visa application has been introduced.
• The fee applies to new visa petitions, with uncertainty surrounding renewals.
• Current H-1B holders outside the US during the rule change cannot re-enter unless their employer files a petition with the $100,000 payment.
• Higher prevailing wage requirements have been implemented.

Impact on Indian IT Sector

The new policy is expected to significantly affect the Indian IT sector, given that Indians represent 71% of H-1B approvals. In the most recent data:

Top Indian IT companies received a total of 16,244 approvals:

Financial Implications

The cost burden for top Indian IT companies could reach approximately $1.62 billion, representing 8% of their combined EBITDA of $18.60 billion. This substantial financial impact may force these companies to reassess their staffing strategies and operational models.

Comparison with Major US Tech Companies

While Indian IT firms are heavily impacted, major US tech companies also rely significantly on H-1B visas:

These three companies alone received a combined total of 15,868 H-1B approvals.

Adapting to Changes

Indian IT firms have already been reducing their reliance on H-1B visas:

• H-1B visa usage dropped from 46,000 to 24,766.
• Companies are focusing on local hiring, automation, and nearshoring strategies.

Potential Consequences

1. Smaller IT companies may be priced out of the H-1B program due to the high fees.
2. There could be an increase in offshoring strategies as companies seek to manage costs.
3. The changes may accelerate the trend of Indian IT firms hiring more local talent in the US.

This new policy represents a significant shift in the US visa landscape, potentially reshaping the global IT workforce distribution and compelling companies to innovate in their talent acquisition and deployment strategies.

A proposed legislation in the United States Congress could significantly impact India's IT industry. Republican Senator Bernie Moreno has introduced the HIRE Act, which aims to impose a 25% tax on US firms outsourcing services to foreign entities, potentially disrupting India's IT export industry.

Key Points of the Proposed HIRE Act

• The bill proposes a 25% excise tax on outsourcing payments made by US companies to foreign entities.
• It seeks to disallow related deductions, further increasing the financial impact on companies that outsource services.
• The Indian IT sector, which relies on the US for over 50% of its IT exports, stands to be directly affected by this legislation.

Impact on Indian IT Sector

Despite initial concerns, the Indian IT sector has shown resilience:

• The Nifty IT index gained for the second consecutive session, with several companies posting significant gains.
• Oracle Financial Services Software led with 8.00% gains, followed by Persistent Systems (4.70%), Mphasis (4.60%), and Coforge (3.60%).
• Major IT companies including TCS, Infosys, Wipro, and HCLTech also posted gains between 1.50% to 2.70%.

Factors Driving the Rally

Several factors contributed to the recent rally in IT stocks:

1. Improved trade relations sentiment after President Trump and PM Modi expressed optimism about ongoing India-US trade negotiations.
2. Oracle Corp's strong cloud revenue growth of 55.00% to $3.30 billion, boosting its Indian subsidiary OFSS.
3. Infosys announcing board consideration of a share buyback proposal.
4. Rupee depreciation past 88 against the dollar, providing margin benefits for IT exporters.

Potential Consequences of HIRE Act

If passed, the HIRE Act could have far-reaching consequences:

• Fund managers estimate that the tax could pressure margins by an additional 500-1000 basis points.
• Indian IT firms may need to significantly increase their onshore staffing in the US to mitigate the impact.
• US companies might face challenges in finding immediate replacements for Indian IT services, given India's unmatched scale and skill in the sector.

Industry Response and Outlook

While the proposed bill has caused concern, industry experts point out several mitigating factors:

1. Legislative Uncertainty: Only 3-4% of the 10,000+ bills introduced annually in US Congress actually get passed, suggesting that the HIRE Act faces uncertain prospects.

2. India's Unique Position: Analysts note that no other country currently matches India's scale and skill in IT services, making it difficult for American companies to find immediate alternatives.

3. Continued Innovation: Indian IT companies continue to innovate and expand their capabilities. For instance, Tata Consultancy Services (TCS) recently announced a partnership with CEA, a French research institution, to advance Physical AI research and innovation in France.

As the situation unfolds, the Indian IT sector will likely continue to monitor the progress of the HIRE Act closely while exploring strategies to maintain its competitive edge in the global market. The industry's ability to adapt and innovate may prove crucial in navigating the challenges posed by potential changes in US tax policy.