Indian IT companies help US companies retain their global competitive edge. This is just one reason why it must roll back visa curbs on Indian IT professionals, argues 'India Global Business'.
The trickle of bad news buffeting the Indian IT sector is slowly gaining critical mass. Infosys, Wipro and Cognizant, three leading software exporters, have cut their annual revenue guidance to 8.4 per cent from 12 per cent, citing macro-economic factors such as falling ticket sizes of deals, Brexit and a frustrating inability to scale up the skill sets of their workforce.
Then N. Chandrasekaran, CEO of TCS - India's largest software company and exporter, has warned that the company's second quarter numbers could be hit.
Now, Nasscom, the apex body of the Indian IT sector, has revised its annual revenue growth target to 9 per cent from 10-12 per cent it had forecast at the beginning of the year.
The reasons are the same across the board. In addition to the ones mentioned above, the factors at play include the failure of these companies to move up the software services value chain with a differentiated business model despite a concerted effort in this direction.
The worrying fact is that a substantial portion of their revenues still comes from relatively lower end work, which give steady margins but can no longer generate high levels of growth for the $146-billion Indian IT sector.
Why easier visa norms are important
- Indian IT firms help the US economy by increasing their efficiency
- Indian IT sector supports thousands of jobs in the US
- Indian IT contributed over $20bn in federal taxes over five years
- Will help companies move up software services value chain
- US accounts for 60 per cent of the IT sector's revenues
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The politically incorrect secret is that Indian IT companies still focus primarily on “exporting” IT professionals to remote locations to address their clients' needs.
The US accounts for 60 per cent of the sector's revenues. That is why an easy US visa regime is vitally important for its health - at least for a few more years, till it can move up the value chain to a point where a bulk of its revenues come from such work.
Indian IT companies and IT professionals are biggest beneficiaries of the H1B visas, which allow professionals to work in the US.
The traditional Indian business model of sending IT professionals to the US, which received its first big jolt in the aftermath of the global economic crisis triggered by the collapse of iconic Wall Street firm Lehman Brothers, has still not recovered fully.
With high unemployment remaining a hot potato political issue, it was but natural that the issue of Indian professionals “stealing” jobs of US citizens would be seized upon by politicians hungry for votes.
With the likes of Republican presidential candidate Donald Trump stoking the fears of average Americans about getting “Bangalored” (a slang for US citizens who have lost their jobs to Indians working for IT companies based in Bangalore) and other US politicians milking the issue for votes in state and local elections, the issue of granting more visas to Indian professionals has got mired inextricably with the US political process.
US companies more cautious now
Indian companies were long used to large US companies doling out multi-million- dollar - sometimes multi-hundred-million dollar - IT outsourcing contracts that they would renew without demur.
The stubborn global slowdown has changed that. US companies have, of late, taken to handing out smaller contracts that they ramp up only after seeing the benefits.
The Brexit vote has exacerbated the problem as many FTSE-listed companies have deferred or frozen their IT spending.
Indian IT companies, which were largely caught napping by the post-Lehman slowdown, have been trying to claw up the value chain.
But they are no longer the nimble-footed challengers who took the world by storm by solving the vexing Y2K problem a decade and a half ago. Companies like TCS, Infosys, Wipro and others now employ hundreds of thousands of people, many of whom lack the skill sets to take on the new roles being demanded of them.
Thus, the US market - and the ability to ship people there for regular IT jobs - is important for these companies while they take steps to resolve the talent mismatch and the resulting inefficiencies.
At least two senior IT professionals working in leading Indian companies said the inefficiency on this count could be more than 50 per cent. This, very often, results in engineers ending up on wrong projects.
This didn't matter when all these companies had to do was assign people to regular jobs. But now, the game has changed.
Several studies have shown that there is a massive mismatch between the aspirations of engineers and their ability to find work in the industry of their choice. IT is the profession of choice for a vast majority of Indian IT graduates but less than one in five have the skills that employers are looking for.
The Indian IT sector is at a crossroads. To paraphrase the title of the famous Marshall Goldsmith book, what got it here won't take it there.
It will be a long and difficult transition, involving great pain and gut-wrenching change.
But the transition, once completed, will once again lead to a win-win situation for both US companies and their Indian counterparts.
India has already challenged the US decision to impose higher fees for H1B and L1 visas before the World Trade Organisation (WTO).
Indian commerce minister Nirmala Sitharaman recently told India Incorporated that US restrictions on the movement of professionals are contrary to the provisions of the General Agreement on Trade in Services.
Her ministry will also take up the issue with the US at the highest level to try and arrive at an amicable settlement.
Why easier visas will benefit the US
In the US election season, the shrill, high decibel debate over outsourcing - and its emotional connect with voters who have lost, or fear losing, jobs - has drowned out saner voices who point out that far from stealing US jobs, Indian IT companies actually help the US economy by increasing their efficiency.
A report last year by the Confederation of Indian Industry and Grant Thornton titled 'Indian Roots, American Soil' points out that about 100 Indian companies have invested $15 billion in US industry and created 91,000 direct jobs in that country.
Another report by Nasscom, also released last year, says the Indian IT sector supported more than 400,000 jobs in the US and contributed more than $20 billion in federal taxes over the last five years.
"The Indian IT industry has definitely made a big contribution to the US economy," Sitharaman has said.
Thus, the continued good health of the Indian IT sector is not only important for India but also for the US economy.
It is for this reason alone that the US must continue to support the efforts of the Indian software companies to successfully complete the transition to the higher reaches of the sectoral value chain.
One way of displaying this support would be to roll back the restrictions and fee hikes it has imposed on issuing visas to Indian IT professionals.
