Provisions
in an overhaul of US immigration bill will close loopholes that allow
outsourcing companies, Indian and American, to pay guest workers in the
US at rates often below wages for equivalent-level Americans. The
proposed changes are in line with President Barack Obama's vows to make
it tougher for US companies to replace American workers with cheaper
labor abroad, either by opening factories overseas or subcontracting
their work to outsourcing companies.
The cost
to the Indian companies, which do everything from running call centres
to managing the massive amounts of transactional data generated by
banks, could run to several hundred million dollars in lost profits.
India's
$108 billion outsourcing industry has shrugged off bad publicity in the
US and other countries since it began blossoming more than a decade
ago. It has plenty of supporters among global corporations who prized
outsourcing's ability to lower their costs and boost profits. But with
the world economy stagnating, and US unemployment at stubbornly high
levels since the recession, a day of reckoning appears to be looming.
At
issue in the US are high-skill worker visas called H-1B that have been
dubbed the "outsourcing visa" by critics who say the system allows
companies to bring in cheaper tech workers from abroad instead of hiring
Americans.
The immigration bill, the larger
point of which is to boost border security and provide a path to
citizenship to 11 million people living illegally in the US, would
impose steep fees for companies such as Indian outsourcers that have
more than half their US staff on the permits and also require them to
pay higher salaries.
The Indian government and
the country's outsourcing industry are gearing up for a fight during
debate on the bill, which could take weeks or months due to its other
contentious issues. The draft law is now in hearings before the Senate
Judiciary Committee.
India's ambassador to the
United States, Nirupama Rao, argued in USA Today that everyone benefits
from a generous guest worker policy, with Indian tech firms also
creating 50,000 jobs for American workers and consumers benefiting from
cheaper technology.
Yet criticism in India that the proposed changes are protectionist and discriminatory is not eliciting sympathy in the US
"This
has to do with a business model that exploits US immigration loopholes
for competitive advantage," said Ron Hira, an associate professor of
public policy at a Rochester Institute of Technology who studies
outsourcing. "It has nothing to do with the location of the headquarters
of the company."
The rapid rise of India's IT
outsourcing industry has been a success story in a country better known
for its stifling bureaucracy and biting poverty. In under a decade,
information technology outsourcing companies had created more than 2
million jobs and in 2012 contributed 6.4 per cent of India's GDP,
according to National Association of Software and Services Companies,
based in New Delhi.
That success has reflected
the ability of India's companies to develop cheap software using Indian
designers at home, where wages are far lower than in the US. But that
makes it necessary, the industry says, to bring the Indian designers and
experts "on site" to the US where they are putting the systems into
place.
Indian IT companies now use more than
one-third of the 65,000 high skill visas allowed under US regulations.
The US branches of Indian outsourcers rely on bringing in their own tech
experts from home, saying they are most familiar with the software and
other technology developed in India to streamline American companies'
payrolls, record-keeping and other outsourced functions.
While
American companies also compete to obtain the foreign guest worker
visas, most are not as dependent on the visas as Indian companies,
industry representatives said. Still, it was an American tech company,
New Jersey-based Cognizant Technology Solutions, that was the No. 1 user
of the guest worker visas, with nearly 9,300 in 2012. Cognizant also
has a significant workforce in India.
"Lack of
talent in the United States and the abundance of talent in countries
such as India" is the reason for high demand for foreign tech worker
visas, said Ameet Nisarkar, senior vice president of Nasscom.
He
said unemployment in the US tech industry has been at 4 per cent or
below, even during the worst days of the global recession, and so high
tech companies need to bring in foreign talent.
The
proposed new visa regulations - hammered out in negotiations among the
eight US senators who drafted the bill - would raise the H-1B cap from
65,000 to 110,000 initially to satisfy technology companies who argue
they need the foreign workers.
However,
seeking to prevent undercutting American salaries, the bill would
require those foreign workers to be paid more than under current law,
impose steep fees of $10,000 per visa on big companies with more than
half of their staff under such visas and starting in 2014 completely ban
new H-1B visas for large firms with more than 75 per cent of staff as
guest workers.
Sandeep Muthangi of Indian
brokerage IIFL Capital says the draft provisions could increase wage
costs for Indian companies by 12-15 per cent and bring profit margins
down by a full percentage point. Mumbai-based Tata Consultancy Services,
India's top outsourcer, earned $2.6 billion in the fiscal year ended
March and had a profit margin of 22 per cent.
For
US labor advocates, those profits are proof that Indian outsourcing
companies can afford to pay for what they say is damage done to the US
labor market.
"Indian companies can advertise
and recruit in the US just the way foreign auto companies do. There is
plenty of homegrown talent who would be happy to work at a good salary
for a company with a future in the United States," said Ross Eisenbrey,
vice president of the Economic Policy Institute, a left-leaning think
tank in Washington.
