Now that US President Barrack Obama has signed into law the new provisions virtually doubling the visa fee for temporary skilled workers, the Indian software industry has to devise a strategy to deal with the impact. It is, however, necessary to first figure out what exactly this impact would be. Estimates that annual expenses of Indian companies could rise by around $250 million are now being contested by informed analysts. Even if the final impact is nowhere near this level, India’s software industry must begin to look for domestic market opportunities which may have got neglected because of the low-hanging fruit waiting to be picked in foreign markets. The US has traditionally offered both high volumes and margins. Fortunately for the industry, the US setback comes at a time when the domestic market is picking up sharply. The unique identity project is only the most high profile element of an overall government push, both at the Centre and the states, to harness the benefits of information technology (IT) to both improve efficiencies and take governance delivery to a new level. In fact, government spending has been a prime tonic for the IT industry in whichever country it has been able to achieve substantial size. China’s software industry, which is far larger than India’s if you take into account overall (including domestic) demand, owes much to government push. Plus, the Indian industry is likely to gain from steadily rising private demand as firms grow and increasingly realise the gains from IT use.
Another important way in which the industry can counter the setback is by hiring more locals in the US. The incentive for this has just gone up. Closer physical customer proximity has always been advantageous but it is the large cost gains from offshoring that prompted US firms to send jobs overseas in the first place. Greater onshore hiring and presence is likely to improve the image of the Indian industry in the US in the long run. It will also push the industry to become more global in its approach, that is hire more around the world and not invariably give primacy to the solution of taking a job offshore to deliver it cheaper. This will certainly raise costs and reduce margins but as the industry matures, it should be able to reconcile itself to lower margins that were possible in the heyday of growth. The incentive to offshore more will naturally be greater now and therein lies the technology and process challenge. So, it has to be a two-pronged strategy — offshore what you can and use more of locals to do the rest. One consequence of these threats to jobs in the IT sector is that a new generation of bright young people may opt for other professions. Which is not a bad thing. Far too many of India’s best and brightest have gone into the IT and the software line. The mad rush for computer software courses will abate a bit.