US visa bill can shave India's GDP

Can the US immigration bill affect India’s economic growth?

Yes, said Viju K George and Amit Sharma, analysts with JP Morgan.

In its current form, the bill can have a substantial impact on India’s gross domestic product (GDP), they believe.

“Owing to the outplacement clause, which debars sending H1B/L1 employees to the US at client sites for firms with over 15% US-based employees, Indian information technology firms could experience serious revenue loss,” George and Sharma said.

“Given the importance of the sector to the Indian economy through both the direct and the multiplier downstream impact (for every one job created in the IT sector, four are created in the rest of the economy) it exerts, the revenue loss to the India GDP could be as much as 0.3-0.4% in fiscal 15,” they said in a note.

While IT contributes a good 5% to India’s GDP, IT services account for about 58% of the overall IT pie (including IT services, BPO and R&D).

Of this, the US contributes about 60%. Without outplacement, US IT services export growth will be 15% in fiscal 2015.

However, about 75% of this opportunity is accounted for by the Indian third party industry, which is vulnerable to outplacement, according to George and Sharma.

Shubhada Rao, chief economist, Yes Bank, averred: “It is definitely a concern when India’s service exports need to grow. At a time when US recovery is showing steady signs of improvement, India’s IT sector stands to benefit. As such, we hope that there is a pragmatic underpinning of the issue.”

The impact of IT sector losses on ancillary industries related to its functioning – like real estate, travel and hospitality, means a further hit to India’s GDP from these sectors as well, which get significant income from IT firms.

Som Mittal, president of Indian IT body Nasscom, believes the White House should now intervene on the Immigration Bill, considering the adverse impact it could have not only on Indian IT firms, but on numerous US companies who outsource as well.

Subsequently, most industry experts believe the Immigration Bill will undergo a lot more lobbying and the final Bill will have a lot of changes to its present form.

Nevertheless, software firm can implement a few changes to dilute the impact of the Immigration Bill.

“The impact of outplacement can be offset by factors such as local hiring, increasing the offshore content of work and/or greater automation. These changes could reduce the gross impact to the sector by 25%,” George and Sharma said.

Another IT analyst, who did not wish to be named, concurred. “While the impact of the Bill on India’s GDP seems a little far-fetched till the Bill is finally passed, software firms can start shifting more work offshore or acquiring more onsite business.”

Some of these changes have already started taking place in software firms, looking at the growing number of local delivery centres, local hiring and fewer visa applications for Indian engineers to work in the US.

Source: http://www.dnaindia.com/money/1853166/report-us-visa-bill-can-shave-india-s-gdp