Transfin.
HomeNewsGuidesReadsPodcastsTRANSFIN. EOD
  1. News
  2. Explained

How Will Donald Trump's Suspension of H-1B Visas Affect Indian and US Companies?

Editor, TRANSFIN.
Jun 30, 2020 4:36 AM 5 min read
Editorial

On June 22nd, citing COVID-19’s economic disruption and rising unemployment, US President Donald Trump signed an executive order to freeze the distribution of temporary worker visas, namely the H-1B, H-2B, J and L, till the end of 2020.

While the fine print is still unclear, employees with approved visas for FY21 starting in October will be affected. The proclamation will not affect some essential workers and valid visa holders already in the US.

All the above-mentioned visas are temporary, non-immigrant and work-based programmes. The H-1B, however, is the largest and most important of them - at least for India - so for the sake of brevity we’ll only discuss what the suspension of H-1B visas means for businesses in India and the US.

What is the H-1B Visa?

The H-1B is the largest guest worker programme in the US, availed by workers in “specialty occupations”. It is a temporary non-immigrant work visa that enables companies to employ highly skilled, low-cost foreign workers in jobs that require high technical expertise (mainly in the tech and IT sectors).

How Long is an H-1B Visa Good For?

The programme is employer-driven i.e. Any H-1B application must be sponsored by a valid company. So the individual must have an offer of work prior to submitting the application. The duration of stay is three years, extendable to six years.

FYI: Companies that send H-1B applications to the US government have to attest that they will not pay an H-1B worker less than they would an American worker and that H-1B workers will not “adversely affect the working conditions” of other workers. However, these rules are rarely (if at all) enforced. This has led to companies laying off American workers to hire foreign workers, who are paid less in wages and benefits.

H-1B Visa Application

Each year, a maximum of 85,000 H-1B visas can be issued. Of these, 65,000 are issued to highly skilled foreign workers and the remaining 20,000 to highly skilled foreign workers with a higher education or masters degree from an American university.

The process of selection depends on the number of applications. If the number of applications exceeds the number of visa slots (which is usually the case), a “lottery” is conducted (officially known as a “computer-generated random selection process”) to see who gets a visa and who doesn’t.

FYI: As per the US immigration agency, there were an estimated 583,420 H-1B authorised work permit holders in the country as of September 2019.

 

Donald Trump and the H-1B Visa

What Trump announced last week didn’t take many by surprise - after all, it’s not a secret that he isn’t a fan of large-scale immigration to the US, illegal or not. Trump has repeatedly argued that foreign workers steal jobs from Americans and has called on American companies to buy American and hire American.

As for the H-1B visa, he has called it "a cheap labour programme" and has repeatedly expressed interest in reforming the “broken” system.

The visa’s status has thus been imperilled ever since Trump took office in 2017. H-1B visa denials rose to 42% in 2018 from only 4% in 2016. Denials rose to an all-time high in FY19. Employees at top Indian IT firms like TCS, Infosys, HCL and Wipro saw half of their visa applications rejected as the US government pushed for more indigenous employment.

 

How Will the Suspension of H-1B Visas Affect American Companies?

H-1B visas are very important for many US companies, who are able to bridge crucial skill gaps and hire the top available talent, helping them remain competitive, innovative and productive.

In particular, these visas are important for the US tech industry, where H-1B workers hold about 12-13% of jobs. As for their share of all US jobs overall, the number is around 0.6-0.7%.

As for the argument that the visa steals American jobs and gives them to low-cost foreigners...that’s debatable. In fact, researchers from the University of California, Davis and Colgate University found that temporary workers on these visas actually end up creating more jobs for American-born workers.

 

How Will the Suspension of H-1B Visas Affect Indian Companies?

Indians are the largest beneficiaries of the H-1B programme, getting more than 70% of the visas doled out every year.

Indian IT companies also offer subcontracts to Indian nationals already present in the US with valid H-1B visas. Bangalore-based Wipro, for example, spends as much as 20% of its revenue to subcontract Indian workers with valid H-1B visas.

Even before Trump’s order, Indian IT companies had been working towards reducing reliance on these visas and hiring local talent in the US as much as possible. Wipro, Infosys, TCS, Cognizant and HCL cumulatively had less than 5,200 H-1B approvals in FY19, compared to 23,000 in FY13, as they hired more people locally.

Nevertheless, the order was met with opposition by business and tech leaders, who said restricting these visas could cut off supply of required skill sets that might not be able to be filled locally.

Analysts expect the impact of Trump’s move on Indian IT firms (at least the Tier-1 ones) to be muted in the medium-term. After all, even if the visas were availed, workers would not be able to visit embassies or travel the US considering the prevailing situation.

However, if the ban is extended beyond December 31st, it could have a negative impact on margins and worker wages of Indian IT companies, which still send thousands of low-cost employees to work on client sites in the US.

FYI: H-1B has sometimes been used as a geopolitical pawn. Last year, it was rumoured that Washington was mulling country-based caps on the visas to force India to deter its data localisation rules. And India’s Ministry of External Affairs opposed Trump’s announcement last week, saying it “likely to affect movement of Indian skilled professionals who avail of these non-immigrant visa programmes to work lawfully in the US”.

FIN.

The cut-throat world of Business and Finance means that there is fresh News everyday. But don't worry, we got you. Subscribe to our Wrap Up Newsletter and get commentaries like the above straight to your inbox.