H-1B visa ban: IT firms will find it tough to pass on extra costs

Dr. Pralok Gupta, Associate Professor, Centre for WTO Studies, IIFT and an international trade expert, believes that the COVID-19 induced suspension of H-1B visa for the rest of the year is nothing but a covert strategy to mask the ‘America first’ rhetoric in terms of employment, given that elections in US are just around the corner. He believes that once the elections are over, these curbs will be eased, because there is no way that huge American MNCs can chart a growth story by relying solely on American talent.

IBT: What implications will the decision by the US government to impose visa curbs on highly- skilled immigrants have on the American economy’s post-COVID recovery?

Dr. Pralok Gupta: We can see this from two perspectives. First, the sectors, which are at the forefront of providing relief from the COVID pandemic, such as healthcare, and second, sectors indirectly affected by the pandemic, such as IT, banking, automobile, e-commerce firms, insurance and finance, etc.

As far as the former is concerned, they may not be affected much by the suspension of H-1B visas as the US may ease visa conditions in these sectors to meet the growing need of healthcare professionals. The US has a paucity of healthcare professionals – doctors, nurses and paramedical staff. In the past too, they have eased the visa norms for doctors and now also they can do this as and when required.

However, for sectors like banking, insurance and finance, the impact of visa suspension could be significant as they are very much dependent on IT-enabled services. For that matter, even healthcare services could be indirectly affected as their backend operations are dependent on IT solutions. If foreign professionals are not allowed to come to the US, it will definitely impact their ability to find tech solutions and to work seemlessly.

Even the big tech companies of US like Amazon, Google & Microsoft will feel the heat because they are significantly dependent on global talent for their growth. So, visa restrictions on skilled foreign workers will affect even these US-based companies. There’s no way that these firms can have a growth story purely on the basis of American talent. This is why Sunder Pichai of Google was one of the first to vouch concerns against these visa suspensions.

IBT: Is COVID-19 pandemic a strategy to mask the ‘America first’ rhetoric in terms of employment? How will this move impact the hiring situation in the USA?

Dr. Pralok Gupta: Yes, definitely, this rhetoric is from the perspective of employment. All over the world, there are retrenchments; pink slips are being handed over to employees and a large number of sectors are adversely affected.

You cannot generate employment when companies are going bankrupt and/or they are in the process of laying off workers. The only way to counter this situation is to create a rhetoric. This is exactly what the US is doing. It is conveying to the Americans that foreigners will not be allowed to take jobs from them and these jobs are reserved for the local American population. This rhetoric is doing the rounds in America because the elections are very near. Once the elections are over, then these restrictions are likely to be lifted or eased because US companies are highly dependent on global talent for their growth and they may find it difficult to recover from the pandemic without relying on foreign talent. The same thing happened during the 2008 Financial Crisis too.

As far as impacting the hiring situation in sectors like IT & ITeS is concerned, it is not the case that the US has local talent available, but it is being displaced by talent from other countries. The fact is that skilled professionals in these sectors are not available readily in the US, and that is why Indian companies as well as their own companies rely on foreign workers. This whole visa suspension/curbs debacle seems more to be a political narrative that has been happening off and on in the past few years. Certainly, by putting visa curbs on the movement of skilled workers, local hiring can increase in some sectors subject to the availability of local talent. But for the remaining services where there is a dearth of American talent, visa curbs will not significantly improve the hiring position.

IBT: What repercussions will the imposition of sanctions on the movement of non-immigrants have for the IT industry in India? What options do they have to tackle this challenge?

Dr. Pralok Gupta: In the short term, yes, Indian IT companies will be affected because that is their operational model. They set up their offices in US and get their employees based in India to go and work there. The visa curbs will, therefore, definitely impact them.

But over the years, Indian IT companies have confronted these kinds of situations on and off since restrictions on Mode 4 movement is not a new phenomenon.

Accordingly, these IT companies have also adapted their business model to mitigate the impact of such restrictions. They have reduced their dependence on the movement of professionals. A new trend is that these companies are relying more on Indian professionals who are already in the US instead of rotating and substituting them with new a set of professionals sent from India. They’re also exploring options like relying more on Mode 1 or online delivery of services.

Having said that, one difference that Indian IT companies would face this time is that earlier they would pass on the extra costs associated with restrictions on movement of professionals to their client in the US. But now because of the COVID-19 situation and the drying up of revenues for companies across the sectors and globe including US, the option of passing on the increased cost to the client may no longer be a feasible option and that is where these companies will get affected.

IBT: How will these visa curbs shape the future enrollment of STEM students in the USA? What are the other countries that will emerge as an alternative study destination for Indian students?

Dr. Pralok Gupta: Well, it may lead to some increase in the students’ enrollment in the US because they know that once you enter the US as a student, you have better chances of working over there. But of late, the US is mulling over putting restrictions even on such foreign students entering its job market. So, they may not be considered for jobs or they may be granted visas for shorter tenures in future. So, that way, there is an uncertainty there also. Added to this is the higher cost of studying in the USA.

Many of the prospective students are considering alternative destinations. Canada has been very welcoming of the foreign students. Other important destinations for students are countries in Europe and Australia from the point of view of reducing uncertainties and getting employed there.

IBT: Will COVID-19 bolster American unilateralism? How can India use the WTO platform to fight for its cause?

Dr. Pralok Gupta: COVID-19 will not really bolster American unilateralism because the US was doing whatever it wanted even prior to the occurrence of COVID-19. A case in point is its unilateral actions against China and the consequent trade war. But yes, with the pandemic, it will get an extra weapon in its armory to take unilateral decisions against any country, which it considers to be a threat to its national interests.

India may not be able to use the WTO that much to fight for its cause because currently, the WTO has become more like an organization without teeth. This is due to the Appellate Body crisis led by blocking of the appointment of new judges to this body by the US. Unless there is a proper dispute settlement mechanism in place, which is accepted by all members, nothing much can be done to check US unilateralism.

There are some alternate mechanisms – such as the Multi-party Interim Appeal Arbitration Arrangement under Article 25 of the Dispute Settlement Undertaking – which are being proposed by countries like EU, Australia, China and Canada. But the other countries have not yet accepted these alternative processes.

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Dr. Pralok Gupta is currently working as Associate Professor (Services and Investment) at the Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi since May 2012. Earlier, he has served in the UP State Civil Services and Industrial Finance Corporation of India. Dr. Gupta has a Ph.D. in Economics and Social Sciences from Indian Institute of Management (IIM), Bangalore and has also been a visiting and full-time faculty to various institutions in India.