Rising US Protectionism Puts Indian Industry on Edge
The Indian industry body ASSOCHAM is warning that India's economy will suffer collateral damage in the event of a trade war with Mexico and China that is expected to be triggered by incoming US President Donald Trump.
“The Trump threat to protect the US interest in an inward-looking manner is for real now," read the report. "India should not sit and watch the trade war among the big economies, mainly the US and China from the sidelines. We must take pro-active steps to ensure that we remain on the right side of the upcoming US administration; or else the impact could be on the Indian services exports to the American firms.”
The damage for India, the report added, would come not only from the US but also from China, which after Trump's inauguration could be expected to double up dumping its goods to countries like India as it gets entangled with the US over trade barriers.
Throughout his vituperative election campaign, Trump spewed venom at companies at home offshoring jobs to countries like India while emphasizing the need to hire locally. As he said in his inaugural speech: "Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength."
But as experts point out, Trump's tirade is hardly dissimilar to those unleashed by other American politicians in the past. India's US$150-billion outsourcing industry has often borne the brunt of the ire of American politicians keen to appease their domestic vote banks. These leaders have often blamed Indians for stealing jobs from American citizens.
In fact American workers in the IT sector were once so petrified of losing their jobs to highly qualified, low-maintenance Indian workers that it spawned the term `Bangalore-ed' for each job outsourced to India's IT capital Bangalore.
Trump's strident call to "buy American and hire American" spells fresh headwinds for Indian IT companies, an entrenched presence in California’s Silicon Valley. Among Trump’s early priorities is to limit the H-1B program under which 65,000 temporary workers are allowed to work in the US each year. The top users of the H-1B visa are outsourcing companies mainly from India.
Two top US Congressmen have already reintroduced a bill to curb the use of the visas requiring workers to pay a minimum of $100,000, up from the previous $60,000 The rising cost for the visa per applicant, and the proposed restrictions on the number of visas, may further impact the slim profit margins of Indian firms already reeling under an adverse economic climate post Brexit.
Further, to drive home the protectionist message of the new US administration, the US Labor Department has sued software giant Oracle, accusing the company of discriminatory hiring practices against Caucasian, Hispanic and African-Americans in favor of Asians, particularly "Asian Indians.. Experts fear more lawsuits against companies which have a high dependence on foreign workers, especially Indian titans such as Infosys and Tata Consultancy Services.
Senator Jeff Sessions, appointed as the US attorney general, and recognized as one of the most strident voices on immigration, has come down especially hard on the H-1B program. And speculation is rife that the new administration could whittle down the cap on H-1B visas or raise the fees or auction them. Employers of H-1B workers could also be ordered to pay higher wages which would make hiring Americans more tempting.
Experts say Indian conglomerates like Infosys and Tatas are especially vulnerable as they depend on H-1B visas to directly service their clients in the US. This helps them shave costs while driving growth and profitability for themselves as well as their clients. Tata Consultancy Services, Infosys and Wipro have long used H1-B skilled worker visas to fly computer engineers to the US, their largest overseas market, temporarily to service clients. Staff from those three companies accounted for 86,000 new H1-B workers in 2005-14. The US currently issues close to that number of H1-B visas each year.
Under the new US regime, India’s mammoth US$108 billion technology-outsourcing industry is also being forced to alter its recruitment practices in the US. They are hiring more locally now even though this means higher expenses on hiring and grooming fresh graduates from local colleges.
“We have accelerated hiring of locals in keeping with the new anti-outsourcing sentiment,” says Charanjeet Singh, Vice President HR, Horizons, a Silicon Valley based IT company. "It will drive up costs for sure, not to mention a higher investment of time on the new recruits, but we don't have much choice in the matter." Some companies are also looking to acquire smaller IT-services firms in the US, which would bolster their manpower while minimizing headaches to acquire H-IB visas to fly Indian staff from back home.
However, the Indian IT industry invokes the lack of skilled labour in the US as the main reason for Indian workers requiring HIB visas to travel to on-site locations in the US. Besides, as Indian industry bigwigs point out, India imports as significantly as it exports to the US in goods and services."
As an ASSOCHAM official explained recently: “If the US gives jobs to Indians in back-end operations, India gives a huge market to the giants like Google, Microsoft and Intel who are all now looking at the digital expansion in the Indian economy. So, it is a win-win situation for both the countries."
While few expect a complete shutdown of skilled worker visas as Indian engineers are an intrinsic part of the American IT industry, and US businesses depend on their cheaper IT and software solutions, a tighter regime does increase the pressure on Indian companies trying to focus on revenues. To lobby for support, software services industry body National Association of Software and Services Companies is preparing to meet with key administrators in the US government in February. For Indian software services companies, who have invested more than $2 billion in the US in the past five years, the US accounts for more than half of their revenue.
However, despite the uncertainty and unpredictability, there's cautious optimism too in the US as well as India, that an astute businessman like Trump will not imperil the American industry as India is one of the largest markets for US-origin products in the world at present. Therefore, a protectionist attitude by America will hurt its own interests too. But at the same time, no denying that all parties -- the Indian government, India Inc as well as US companies and the Trump administration -- will need to find new and urgent ways to adjust to the new market realities. And fast.
Neeta Lal is a Delhi-based Editor & journalist; email@example.com