US President Donald Trump is living up to his promises – or threats, depending on where you stand. In a first direct hit on the Indian software sector, Trump has introduced a bill to increase the stipulated salary of H-1B visa holders from USD 60,000 per annum to USD 130,000 per annum.
IT stocks have taken a beating on the bourses since the news was flashed with the NSE IT index falling by 2.83 percent at 2.00 pm. TCS is the biggest loser with a fall of 4.05 percent followed by Tech Mahindra with a drop of 3.58 percent.
Analysts expected Trump to make such a move but their expectation was a rise to USD100,000 per annum. Nearly doubling of H-1B salaries is expected to severely impact companies with a high dependency on such employees.
The United States accounts for nearly 65 percent of all software exports from India; however, revenue generated by the companies through H-1B visa employees is much smaller. Around 15 percent of headcount is made up of H-1B visa employees.
However, the impact is expected to be big. In FY15, the year for which the latest figuers are available, the number of H-1B visas issued stood at 172,748.
Take the case of TCS, its average salary level for H-1B is USD 69,648 per annum for its employees, 15 percent above the minimum level as per the Kotak Securities report. There are 16,553 H-1B employees sponsored by TCS. The hike to USD 130,000 will thus add nearly USD 1 billion in incremental costs for TCS per annum, that is, nearly one-fourth of its FY17 profit.
For Infosys the impact is higher. It has a higher average salary of USD 79,201 but also employs nearly twice as many on the H-1B at 33,289. The employee cost for Infosys is expected to increase by USD 1.69 billion per annum.
It needs to be seen how much of the wage hike will be passed on to the US customers.
According to Kotak Securities, payment of minimum wages is optional provided an H-1B dependent employer provides additional attestations that they have taken steps in good faith to recruit US locals, using procedures that meet industry-wise standards. Also, if the employer ensures that they will not displace any US employee that is similarly situated as the H-1B worker for 90 days before and 90 days after the H-1B petition is filed. But Kotak Securities is not sure if Indian companies will choose this route to avoid minimum wages.
Software industry body Nasscom, however, feels there is still some time before the bill is implemented.