A shock to IT: Indian companies should take the H-1B hit and move on

United States (US) President Donald Trump, in his second term, has shown that he is willing to take major decisions without any public deliberation or notice. This is certainly the case with his announcement that a $100,000 fee would attach to H-1B visas henceforth — a declaration that led to a certain amount of panic among those who are on that visa. There were even reports that passengers on flights out of the US asked to be deplaned on hearing of the news. The White House has since clarified that the fee will be imposed only on new applicants. But there is certainly little or no trust that it will stick to this plan. Those on existing H-1B visas will certainly continue to feel a degree of apprehension when they travel. The lack of clarity on how this decision will be applied and who it will apply to is part of the point, perhaps — Mr Trump’s administration has come to glory in the notion that it does not have to explain itself to anyone, least of all to foreigners. 

The decision also shows that Mr Trump is becoming more radical with his time in office, not less. In his first term as President, his attorney general attempted to restrict and reform H-1Bs, but could not follow through on the plan. The subject of these visas came up again, shortly before Mr Trump’s second inauguration, in a debate between prominent members of the Big Tech and “America First” wings of his coalition. On that occasion, the president-elect seemed to come down on the side then represented by Elon Musk. But since then, Mr Musk has left the President’s orbit and corporate America has demonstrated its willingness to subordinate itself to the White House. The business side of his coalition appears to have decisively lost to the America-Firsters, and the President himself has shifted his emphasis since December. 

While Indian officials have attempted to put on a brave face on this decision, noting that India’s own tech and startup sector can absorb a great deal of additional talent, there is no doubt that there will be serious implications for many of India’s flagship information-technology-enabled services (ITeS) corporations. The fact is that about 70 per cent of H-1B visas went to Indians, and some reports say that almost half the slots in the H-1B lottery were taken by outsourcing or staffing companies. They will naturally feel a disproportionate shock. The people these companies employed on the H-1B were also paid below the average wage for their role, as opposed to other H-1B lottery winners, for example those employed by Alphabet or Meta. There was clearly an outdated business model at work here which this new policy, however clumsily or maliciously, has disrupted. 

Indian ITeS firms must now go back to the drawing board. The political climate in the US has changed regarding their business model. It will similarly change in other locations, including Europe. Wage arbitrage is no longer a tenable basis for an entire business plan. Nor, for that matter, is it as effective as earlier. In the north of England, for example, average wages for a worker in ITeS are only two or three times what they are in Bengaluru. The growth of agentic AI and other innovations are in any case reducing the level of low- and middle-level assistance required by clients. Indian ITeS firms should account for such changes in the business environment and find a different way forward that creates new value for their stakeholders. This may not be easy in the immediate near term, but Indian businesses will need to adapt quickly.