MUMBAI: Analysts have ruled out major impact on the software industry per se due to the $1,00,000 fee on new H1-B visa applications on companies but from next year own wards, the move may spike the wage inflation by 10 percent leading to a 100-200 bps impact on margins.“The new H-1B visa fee will raise operating costs for domestic IT services companies.
This adds to a possible 25 percent tax under the proposed HIRE Act, if American companies outsource to foreign entities,” Sweta Patodia, an associate vice-president at Moody's Ratings said in a note Monday without quantifying the impact.
She was quick to add that however, steady global demand for IT services will help offset some of these rising costs. Large IT firms like Tata Consultancy Services and Infosys are better equipped to manage these pressures because of their higher profitability, strong balance sheets and increased focus on local hiring over the last few years, she added.
“While these US policy changes may slow the growth of the country’s services exports, fewer skilled workers going to the US could also reduce remittance inflows. Still, current account deficits will stay within manageable levels, Patodia said.
According to Sumit Pokharna, vice president at Kotak Securities, the one-time fee on new H-1B visas marks a dramatic shift in US immigration policy, especially for IT companies. He expects the impact coming from the next upcoming lottery cycle from H2FY27, and the full impact will be seen in FY28. The impact could be lower with a few offsets, including higher use of nearshore and offshore locations.
“Our bear case assumes no changes in sourcing patterns and increased competition for onsite talent, leading to 10% wage inflation, in which companies would have 100-200 bps margin impact and 7-14% on FY27 earnings per share. Our base case is that companies would prefer replacing expiring H-1Bs with subcontractors in the near term, paying 20-25% higher wages on average,” Pokharna said.
According to Atul Gupta, a partner (labour and employment) at the legal firm Trilegal, the increased H1-B fees will have a material impact on our technology services companies and professionals and it is very likely that many positions will shift to neighbouring countries in the same or similar time zone (like Canada or Mexico) or come back to India, where GCC’s are already rising and this presents an opportunity to make GCC true centres of innovation.