H1-B Visa Rules In Focus As Donald Trump's Inauguration Day Arrives; How Indian IT Companies Will Be Impacted

Donald Trump 2025 Inauguration Day: Donald Trump's inauguration day is scheduled on Monday, January 20th, officially making him the 47th US President of the largest economy in the world. With that, for Indian IT companies and job seekers, the focus will shift to the H1-B visa program. Immigration is one of the pivotal policies that will be in limelight. New rules set by the US Department of Homeland Security (DHS) for modernizing the H1-B program have come into effect from January 17, 2025, ahead of Trump's inauguration.

Some of the key changes in the new rules of H1-B visas are --- as highlighted by brokerage Kotak Institutional Equities:

1. changes to the definition of 'speciality occupation' such that a beneficiary's educational qualification is directly related to employment, codifying deference for extensions unless a material error is identified, change in eligibility requirements or new information that could adversely impact eligibility,
2. simplifying H-1B cap-exempt requirements, flexible start dates and auto extension of F-1 to H-1B for students and
3. authority to request evidence to demonstrate the bona fide nature of employment, enhanced site visit authority and third-party placement compliance.

From Trump's administration, Kotak is expected that they will choose to modify any provision of the new rule, either by going through a formal rulemaking process, adhering to a lengthy procedural process or with Congress taking action under the Congressional Review Act (CRA) to overturn the rule by passing a joint resolution of disapproval that would be approved by the President, a relatively expedient process. Republican control over both the Senate and House of Representatives would help.

As per many media reports, it is said that Trump is likely to put the H-1B Program as a conduit to attract high-quality talent to the US. The development is likely to discourage the misuse of the program by corporations for labour arbitrage by raising the minimum salary and substantial increases to annual maintenance costs.

Data from Kotak stated that Indian IT is categorized as visa-dependent and generally pays over US$60K per year to H-1B workers. It is interesting to note that the median pay of approved H-1B beneficiaries (initial petitions or continuing employment) for computer occupations workers is ~17% higher than that for US nationals.

It added, "We note that few niche employers filing for specific skillsets would be offering premium wages. An increase in minimum wage would have a wide-ranging impact, but can be easily absorbed, given initial H-1B petitions are 0.08% of the US workforce. Computer occupations-dependent employers would have higher exposure, with initial petitions accounting for 1.3% of the US computer occupations workforce."

Notably, India's share in H1-B visa approvals has contracted considerably since the first term of Trump's administration which was between 2017-2021. Among the sectors, Indian IT firms were highly impacted, especially in 2018 due to a higher rate of denial.

Data from the American Immigration Council showed that during Trump's first tenure as the 45th US President, USCIS initially denied a larger percentage of H-1B petitions than in the preceding four years. However, the denial rates started to ease after the pandemic.

The council's latest report highlighted that overall, denials of new H-1B petitions for initial employment rose from six per cent in FY 2015 to a high of 24 per cent in FY 2018 before dropping to 21 per cent in FY 2019, 13 per cent in FY 2020, four per cent in FY 2021, and only two per cent in FY 2022 (the two lowest denial rates ever recorded).

Meanwhile, Kotak's note said, that since FY2017, Indian IT has significantly invested to hire local talent and to offset any adverse changes to immigration policies. As of the last reported data, Infosys had a ~70% localization rate in the Americas. Wipro leads in US localization, with over 80% of the local workforce (as of FY2022), while HCLT had 74.4% locals in the US in FY2024.

Apart from Trump's stringent measures for H1-B visas, the Joe Biden administration's new rules for the program significantly led to a rise in visa fees. From March 2024, the revised fee structure resulted in a 70% surge in the H1-B visa cost for employers and a 201% spike for L-1 petitioners.

"The visa cost impact has moderated modestly for Indian IT companies over the past four years. A sharp increase in visa costs could, to an extent, reverse this benefit," Kotak's note added.

Kotak believes some part of the potential impact from proposed reforms/restrictions such as rising minimum wage or higher maintenance/compliance costs can be absorbed by Indian IT by pulling the
following levers:

1. Sharp increase in offshoring. Indian IT companies have demonstrated the resilience of their global
delivery model during the pandemic. Deep pools of technology talent at attractive costs have also attracted companies to increasingly set up in-house centres over the past 3-4 years. The offshore revenue mix has reasonably increased across most companies in the sector. A 2-3% offshore shift in revenue can aid margins by 80-100 bps for IT companies.

2. Negotiation of onsite rate increase with clients. Onsite EBITDA margin would be in the 12-13% range for Indian IT. An increase in minimum H-1B wages could significantly impact onsite profitability but can be partly offset if there is some increase in onsite rates as vendors enforce force majeure clauses
within contracts.

3. Ramping up local hiring. The talent situation has considerably eased in the US, which should lead to some cooling-off in the cost of onsite talent and wage inflation.

4. Increased dependence on sub-contractors. This offers a more flexible way for service providers to manage onsite talent during the deal transition and ramp-up phases, though margins could be lower than local talent on rolls. Sub-con costs have moderated due to tepid demand over the past two years, but
can inch up in the face of restrictive visa policies being enforced.

Hence, Kotak believes there are enough offsets to minimize the impacts of abrupt changes to visa policies.

On Trump's inauguration day, shares of Wipro surged by 6.3% which was mainly due to its healthy Q3 results, followed by Persistent Systems and Tech Mahindra which also gained 1% each. However, stocks like TCS, LTIMindtree, Mphasis, LTTS, Infosys, and HCL Tech traded in the red. The Nifty IT index also saw a cautious tone, ranging from 42,478.50 to 41,709.55.