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US visa fee hike will backfire

The alacrity with which both houses of the American Congress passed the border security bill speaks a lot about the arrogance and recklessness of the US establishment. President Barack Obama signed it into a law, it will prove a retrograde step for Indo-US relationship.

The bill, styled as Emergency Border Security Supplemental Appropriations Act, seeks to raise $600 million for sending extra men to the United States’ border with Mexico, where politically sensitive illegal immigration has proved difficult to control. The money will come from raising the cost of work visa (H-1B and L-1) applications originating from a handful of foreign corporations by $2000 per visa.

More than securing the Mexican border, the idea is to punish foreign companies which “exploit US visa programmes to import workers from abroad.” Indeed, the bill itself specifically names four Indian companies (Wipro, Infosys, Tata, and Satyam) in this behalf. The bill’s sponsors claim that these companies basically “domestically outsource” jobs in information technology to temporary workers from India. Rough estimates suggest that Indian companies may end up shelling out $200-250 million a year, which will affect their margins.

One can understand compulsions of American legislators. The move is inspired by Senators with an eye to the mid-term elections in November when the incumbent Senators will face the wrath of the jobless. They must be seen to be doing something to protect American jobs.

American law makers might think that it is very clever of them to squeeze Indian companies in this manner. But the move betrays a fundamental lack of understanding of how the modern world economy works, and even what the foundations of America’s continuing prosperity are. Indeed, it will harm US interests also. For much of the last two decades, US firms have been able to maintain a global competitive edge by accessing cost-effective information technology delivered mainly by the Indian IT sector. This has been a win-win situation for both.

The short-term impact of the new visa rates will be to make Indian IT vendors seek higher prices which they may be able to get as global demand for IT services is reviving.

In the longer run, US firms will urge vendors to deliver more services offshore, that is not post engineers at client sites but at delivery centres around the world. There is nothing definite in the proportion of IT professionals who have to be placed at client sites. In the age of cloud computing when virtually every IT resources is accessed via the Internet and plummeting video conferencing costs allow you to easily see and talk to the person delivering your IT solution from thousands of miles away, raising the incentive to offshore functions is foolhardy.

Moreover, if onsite work by foreign workers is shut out, the US government will lose around $1 billion that Indian firms pay as social security contributions for their skilled workers temporarily stationed in the US. These contributions are a massive net gain for the US as most of the workers do not stay back to enjoy the benefits of the social security payments made for them by their employers.

In the last two decades, the US has emerged as the global hub of innovation and conceptualisation of new technology. This is the core strength of its economy. If US wants to retain this strength, it must welcome everything and everyone that raises productivity and competitiveness of its industries. Petty, short-sighted protectionism can only dull its competitive edge and hurt its long term interests.

Views expressed by the author are his own and do not reflect the newspaper’s policy.