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The US administration has now suspended the grant of H-1B and other related visas for rest of the year and it is important to understand its implications on the status quo prevailing in India.

What is H-1B Visa?

H-1B visa, highly popular among the Indian technology companies, is the visa which grants permission for an Indian to work in a specialised field of occupation.  Other visas include L1 visas which allow a company to transfer its employee to US for a period not more than seven years.

Factors behind the suspension of H-1B visa

The scheme was announced in 1952 when US felt a need to allow the entry of highly skilled yet low cost workers from other countries. However, this scheme has been widely criticised in recent years owing to the technology boom in India and China, resulting in a large number of skilled graduates looking to fulfil their ‘American Dream’. These American dreams started to lose their way when Donald Trump gave several statements regarding the initiation of reforms to curb the H-1B visa system.

The COVID-19 impact on the demand of H-1B visa

As the world economy crawls through the COVID-19 pandemic, the first suspension of issuing H-1B visas came out which was for a period of 60 days and now it has further been extended till December 31, 2020 which is being said to have dented the Indian technology sector.

The suspension is not going to hit the IT companies that ‘hard’ as it is being speculated.  IT firms have a daunting task of getting away with the slowdown caused due to Covid-19.  This follows by another onerous task of less demand and excess of manpower. After these issues are addressed satisfactorily or if Covid-19 had not been hurting the IT firms, then this decision of US Administration would have been a significant blow on the IT companies.  On the contrary, this decision is not going to hurt them because of the other bigger problems.

Subdued demand of manpower

Experts have come in with the conjecture that this development will not have any drastic effect on IT companies because the demand of manpower will be reduced due to the ongoing economic slowdown.  The road ahead for the IT companies is tough and no positive outcomes are expected at least in the year 2020.  Therefore, the COVID-19 impact softens up this blow of the suspension of H-1B visas.

 Decline in revenues

Since the revenue numbers this year are expected to be low, the demand for additional manpower will also stay low.  It will not be a surprise if IT companies lay off the workers for cost reduction. When revenues are expected to be low, there is no point for the IT companies to hire more work force.

Travel restrictions

The global travel restrictions have already forced the IT companies to shift to ‘work from home’(WFH) and the firms are focusing more on this model. It is also expected that the travel restrictions will continue to be strict and strict quarantine rules will also be a hindrance. Therefore, a requirement of hiring overseas employees will significantly fall reducing the demand of H-1B Visas.

Share market reaction

The IT stocks remained steady through the trading session.  Infosys shrugged off these speculations and gained about 25 points closing at 720.45 on June 23.  Similarly, Wipro and TCS also showed gains throughout trading session. Thus, IT stocks showed a normal response when a significant downfall was expected. Share market experts also opined that this news will not hurt the IT companies because of the other factors prevailing in the world economy due to COVID-19.

Moreover, the IT companies will prefer to hire local US workers due to the recent rise in unemployment levels and more than a half of the staff of Infosys, HCL technologies, Wipro are the US local workers.

Although this decision is not going to hurt the IT companies in a large magnitude, if the suspension continuous further, it will certainly be a huge blow for the IT companies and their overseas operations.  For IT companies, the current scenario demands various ‘out of the box’ strategies for cost curtailment because it is almost certain that revenues will decline significantly with no signs of revival in the upcoming months.

- The author is a freelance writer based in Chandigarh.