Donald Trump''s maiden presidential address on Friday could not but have been unnerving for India's biggest export industry -IT services.
Close to 75% of the industry's $150 billion revenue comes from exports, 60% of which are to one country -the US. Worse, Trump's `Buy American, Hire American' campaign has the potential to hit the industry on both fronts. It could persuade US companies to slow down their IT outsourcing to foreign (primarily Indian) companies.And given that Indian IT services companies have built their entire model on the basis of moving most of the work in a contract to India -what's called offshoring -`hire American' policies could force them to substantially rework that model. And that will not happen without a sharp squeeze in profit margins.
Tom Reuner, managing director of US-based IT advisory firm HfS Research, said the timid hopes that Trump would moderate his views as President have evaporated. “The centrepieces of his inauguration speech were jingoism and protectionism,“ he said.
Already , several moves have been initiated to make it more difficult for Indian IT services firms to deal with US contracts. These include efforts to make US work visas more difficult to obtain. An essential ingredient of the IT outsourcing model is to send Indian engineers to the US to understand customer requirements and finally implement and test them, though the substantial in-between work of software development would be done in India. For this reason, Indian IT companies are the biggest users of US work visas like H-1B and L-1. New legislation has been introduced seeking to raise the minimum wage under H-1B to $100,000; that's 50% over the median wage of $61,000-$71,000 that most companies now pay.
Nasscom president R Chandrashekhar says most of these legislations fundamentally discriminate against Indian IT companies. They invariably make the provisions applicable only to companies that have more than 50% of their employees in the US on H-1B or L-1 visas. Only Indian companies would fall in that category. So, even though rivals like IBM and Accenture bring in significant numbers on H-1B, they remain unaffected because they have a large base of local US employees.“If low wage employees are brought into the US, how does it matter whether they are being brought in by Indian companies or others?“ he asks.
Visa pressures and other business requirements have already made Indian IT companies increase their efforts to hire more locals. Trump could compel an acceleration in that trend.
