Clinging to the H-1B lottery has finally caught up with Indian ITeS

Indian ITeS should have moved away from the H-1B lottery

The United States (US) government on Tuesday announced major changes to how the work visa in the country, known as H-1B, will be allotted henceforth. So far, this visa has been handed out following a lottery in which all applicants receive an equal chance of being one of the 65,000 successful applicants. But this lottery is being replaced with a weighted process in which applicants who have been offered a higher salary and who possess skills of greater value will have a better chance of being granted the visa. This rule will come into operation within two months, in time to replace the next scheduled lottery. From the point of view of the US, this is a shift that makes natural economic sense and is aligned with the original aim of the H-1B programme, namely to ensure that American companies stay competitive. If the number of visas is rendered artificially low, the highest aggregate gain in welfare for the US will emerge if they are allocated to the most scarce and valuable skills — which in turn can best be judged by how much those skills are valued in an open-labour market. 

While the economic case for such a change might be easy to understand, it is impossible to divorce this change from its political context. It will inevitably be seen as part of a lengthy backlash against Indian companies and workers in the US, particularly given the intense infighting within President Donald Trump’s electoral coalition when the subject of high-skill immigration was originally broached almost exactly a year ago. In recent weeks, a presidential proclamation was issued, raising costs for employers of new H-1B workers by increasing the visa fee to $100,000. The broader context, in which many other forms of migration to the US are also being shut down — such as the so-called “diversity visa”, which opens up opportunities for smaller countries, which ended last week — is also relevant. But H-1B has become a particular flashpoint because of the widespread belief that it was gamed and misused, in particular by large Indian information technology-enabled services (ITeS) companies. According to a Bloomberg investigation, of the 65,000 visas on offer last year, 11,600 directly went to the large outsourcing corporations. And another 22,600 went to IT staffing companies, which feed into the same sector — many of which submitted multiple applications for the same engineer. Even the large companies put in so many applications a year — constituting more than half their existing workforce, in some cases — that they flooded the system and vastly increased their probabilities of winning. More than half the lottery entries last year were for individuals whose names were submitted more than once. 

This is not a system that is politically or otherwise sustainable, and whatever the merits of the current shift and its chances of being upheld in court, there is a small likelihood that the lottery will be retained without major changes. The fact is that Indian ITeS has tried to hold on to an outdated business model to service its US-based customers and now genuine applicants for the H-1B visa will pay the price for this. While some IT stocks have fallen for successive days since news of these changes emerged, the overall impact has been minimal. This reflects investors’ hopes that Indian ITeS will be able to evolve a new, more modern way of making money. The companies must not let them down.