New rules for H-1B visa mild negative for Indian IT services: ICRA

The proposed changes in H-1B application selection process are prospective in nature but will have a minor adverse impact on the margins of Indian IT services companies, ICRA said

The proposed changes in H-1B application selection process by US Citizenship and Immigration Services (USCIS) are prospective in nature but will have a minor adverse impact on the margins of Indian IT services companies, investment information agency ICRA has said.

The H-1B application selection process will be based on wage levels compared to an earlier selection method based on lottery. Under the new rule, the USCIS will select applications offering the highest wages proffered vis-a-vis selected occupation level or position to attract the highest skilled labour.

ICRA said this is likely to be a mild negative for the Indian IT services as H-1B visa offered wage levels are generally in line or marginally higher than the prevailing wages associated with the position.

 

Compared to the same, international companies offer substantially higher wages and are likely to garner a higher share of such H-1B visas unless Indian IT services companies increase the wages offered substantially.

About 20 to 30 per cent of Indian IT services employees work onsite with nearly 40 to 50 per cent dependent on the H-1B visa. Employee costs form 55 to 60 per cent of the revenues for Indian IT services companies with a majority of the same incurred for onsite work.

"The proposed changes are prospective in nature (effective March 9) and will not impact existing H-1B visa holders. Hence, this will have a minor adverse impact on the margins of Indian IT services companies going forward owing to the overall high dependence on such visas," said ICRA.

The Indian IT services sector is a major beneficiary of H-1B visa programme. The USCIS issued a total of 3.88 lakh H-1B visas during FY2019 (October 2018 to September 2019 period), including fresh ones and renewals, of which India's share stood 71.7 per cent.

With the changes in H-1B selection process impacting margins, Indian IT companies will focus on increasing the offshore component and higher usage of automation and artificial intelligence in the medium term to manage higher onsite hiring costs.

Overall, said ICRA, the impact of proposed changes is expected to be marginally negative on margins, though it is unlikely to impact the credit profile of Indian IT services companies.