On August 13, the US president signed into law an “Act Making emergency supplemental appropriations for border security for the fiscal year ending September 30, 2010, and for other purposes”. Even before the Act became a law, it had raised strong objections from a number of quarters in India, principally from the Indian IT services industry and also from official quarters both at the political and executive levels.
The Act, which was primarily aimed at appropriating $600 million for various purposes in connection with increasing border security on US’ Southwest border with Mexico, would raise funds for this purpose by increasing the filing fees paid by applicants for H-1B and L visas. These fees were raised by $2,500 for L visas and by $2,000 for H-1B visas for applicants that employ 50 or more employees in the US if more than 50 per cent of the applicant’s employees are H-1B or L visa non-immigrants.
The Act was passed by both the House and the Senate with overwhelming support. Except for the hostile and negative reaction from India on the increase in the H-1B and L visa filings, there has been no reaction from any other country. In one respect, India’s reaction was prompted by the disparaging remarks made by Senator Schumer of New York who characterised some of India’s leading IT service exporters as “chop shops”. Subsequently, during the Senate debate on the Act, he admitted that he had mis-characterised these companies as “chop shops” and that he should have used the term “body shops”.
In all other aspects, both the US Congress and the Indian critics of the Act were almost completely wrong in their assessments.
According to Schumer, the “best of the package was that it is fully paid for and does not increase the deficit by a single penny”. The US Congress seems to have been under the impression that the fees increases would fully pay for the $600 million appropriated by the Act. Nothing could be further from the truth.
It is true that each year nearly 300,000 applications are filed for H-1B and L visas. Theoretically, a $2,000 fee increase should yield $600 million — only if all these applicants are required to pay the fees. As the Act makes it clear, the increased fees have to be paid only if the applicants employ more than 50 employees and more than 50 per cent of these employees were H-1B or L visa non-immigrants. Unfortunately for the US Congress, more than 50 per cent of the applications are from applicants who do not come under the Act, i.e. less than 50 per cent — in fact, far less — of their employees are either H-1B or L visa non-immigrants. So, the number of applications that would attract the $2,000 increase would be much nearer 50-60,000 at the most, based on the latest H1-B figures released by the US government. So the additional revenue that would be generated by the Act would be of the order of only $100 million and it would increase the US budget deficit.
The US Congress, therefore, was wrong in its assessment, and so were the Indian industry and the Indian government. The Act was not targeted against Indian companies, although it is true that they constitute the majority of applicants affected by it. According to Infosys, “As of March 31, 2010, the majority of our technology professionals in the US held either H-1B visas (approximately 8,900 persons, not including Infosys BPO employees or employees of our wholly-owned subsidiaries), or L-1 visas (approximately 1,800 persons, not including Infosys BPO employees or employees of our wholly-owned subsidiaries).” This is also true for Wipro, L&T Infotech, and so on.
However, the charge made by the National Association of Software and Services Companies (Nasscom) that “we estimate the impact on Indian firms could be as high as $200-250 million per year” is grossly out of line. First, it is certain that the association has no idea of how many companies would be affected and to what extent. Its data collection efforts and analytical capabilities do not extend to that level. Second, it is not consistent in its statements. According to a Nasscom White Paper on the “Myths and Realities” of H1-B visa usage by Indian companies brought out for distribution to the US Congress earlier “only 10 per cent of the visas were given to Indian IT companies”, i.e. less than 30,000! Even if all these 30,000 applications were charged $2,000, the additional fees would be less than $60 million. And it is certainly a fact that a majority of the applicants would employ less than 50 employees in the US, thereby falling outside the scope of the application of the Act.
For example, of the nearly 30,000 petitions for initial employment approved for employment in computer-related occupations in fiscal 2009, only about 4,000 were from the top 20 Indian companies accounting for a major share of the Indian IT service exports. So, the additional burden of the increased fees is unlikely to cross $25 million annually for the next three years for Indian IT companies that apply for H-1B or L visas.
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Moreover, given that less than 1 per cent of the revenues in any year is spent on visa charges and that major Indian IT companies earn an operating profit of about 35 per cent of revenue, the additional cost — a maximum of less than 0.5 per cent of revenue — should not affect their overall performance.
Under these circumstances, the Indian government should maintain a discreet silence and refrain from making statements that the Act will affect bilateral ties and that it is not WTO-compatible. Bilateral relations will certainly not be affected on account of the fees increase and any attempt by India to formally approach WTO for a ruling on the fees increase will be a lost cause.
The fees will affect mainly Indian companies since they account for 45-50 per cent of all H-1B visas. In the short run, however, they should be able to absorb it (the fees increase runs only for three years). Meanwhile, Nasscom should do a better job of data collection so that it can advise the government intelligently instead of making wild statements.
The author is a consulting fellow at the Institute of Defence Studies and Analyses