H-1B, L-1 visas suspension 'mildly negative' for Indian IT firms: Icra

The temporary suspension of H1-B and L-1 visas by the US is a "mildly negative" development for the Indian IT companies as their dependence on permits has gone down lately, a domestic rating agency said.

Indian IT companies have reduced their dependence on the visas because of the tightening of visa issuances like allowing only the highly trained and a preference for US-educated individuals while granting H-1Bs.

The Donald Trump administration's order for temporary suspension was driven by the Covid-19 pandemic impact on the US economy, which has skyrocketed unemployment rates in an election year.

Indian IT industry body Nasscom, which estimates the overall industry size at $180 billion, has said that the proclamation as "misguided" and said this could be harmful to the US economy itself.

The temporary suspension of issuance of fresh H-1B visas and L-1 visas (inter-company transfer) till December 2020 in view of the impact of Covid-19 pandemic on the US economy and employment will be mildly negative for the Indian IT services sector, ratings agency Icra said.

It said the top seven India-based companies had only 6,855 H1-B petitions for initial employment approved in FY19, a decline of 63 per cent as compared with FY15, attributing the same to inability by the sponsor employer to establish that the position is a specialty occupation, inability to substantiate a valid employer-employee relationship and lack of evidence of specific assignment at third party sites for the entire visa durations requested.

As a result, companies are relying less on such visas and building up domestic workforce in the United States, it said, adding that technological advancements including cloud computing, digital services and automation are being used to reduce the reliance on manpower.

The decision will hamper execution of projects in the pipeline and new projects, and also dent margins because of higher local hiring activity, it said.

Concurring with Nasscom, it also said that Indian IT companies will focus on increasing the offshore component to manage disruptions caused by temporary suspension coupled with higher usage of automation, artificial intelligence in the medium term to manage higher onsite hiring costs.

It estimated that the onshore hiring or hiring at customer locations costs up to 30 per cent higher than the cost of sending a domestic worker on a H1-B visa and hence, impacts the margins for such companies.

From a ratings perspective, it said the credit profile of the companies is unlikely to be impacted.