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Visa row: Who stands to gain?

Last Updated: Wednesday, August 25, 2010 - 15:50

Anil Kumar Satapathy

Few days ago, a national daily published an article, saying US computer technology giant International Business Machines (IBM) was the second largest employer in India after the Tatas – a potentially ‘explosive’ piece of news that could put the US firm under the scanner of the ‘protectionist’ Obama administration. Interestingly, the news appeared at a time when President Barack Obama is pressing US corporations to create jobs in the domestic economy rather than outsourcing them to cheap overseas labour markets.

The Obama administration got the Emergency Border Security Supplemental Appropriations Act of 2010, or the border security bill, passed in Congress. The bill seeks to raise nearly USD 550 million by increasing the fee in the categories of H-1B and L1 visas for the next five years. The H-1B is a non-immigrant visa that allows US companies to temporarily employ foreign workers in speciality occupations. The US government’s decision to hike visa fee is widely expected to hit Indian IT firms which have a large exposure to the American market and which temporarily station a section of their engineers to offer near-shore services to their clients. According to some reports, Indian IT firms can end up paying USD 200-250 million more per year, which will affect their margins.

Business groups in India and the US have termed the government’s move as “discriminatory”, and said this would undermine the growing Indo-US economic relationship, with which the Obama Administration does not agree. But some IT companies have even called on India to move to the World Trade Organisation over the issue.

Is it mere politics?

Remember the US presidential campaign election during 2008? Then an energetic Obama, the rising star of change, warned industries against outsourcing jobs to low-wage countries such as India. That was at the height of the Great Recession.

It is now his second year in the White House and the Indian industry was yet to feel the pinch, till the recent visa row broke out. Notably, the controversy cropped up when Obama’s approval rating has started falling drastically. A poll conducted early last month showed that nearly six in 10 voters lacked faith in the President, and a majority said they did not approve of his handling of the economy.

Interestingly, latest figures (till August 13) show that applications for H-1B work visas, once most sought-after among Indian IT professionals, have not even reached the 50-percent mark of the Congressional-mandated quota of 65,000.

In 2009, Indian tech companies used 4,809 new H-1B visas, which equals to just 0.003 percent of the US civilian labour force. Moreover, H-1B use by Indian companies has declined by 70 percent between 2006 and 2009.

The real problem of illegal migration lies elsewhere. There are some 12 million people living illegally in the US and most of them have come through the southern border of the US from Mexico. Illegal immigration is a hot issue in the US and is likely to become the central one ahead of November’s Congressional elections.

So, Obama’s move to introduce the border security bill should be seen in the larger political interests of the administration. The bill seeks to reduce the inflow of migrants from the southern border of the country, while Indian job seekers will also be put under check.

Is India over-reacting?

In a blog titled ‘Is America the Only One Being Protectionist?’, Wall Street Journal has slammed India of being over-reactive. “In December, India’s Labour Ministry tightened its work visa standards by barring Indian embassies from directly issuing employment visas for projects where the total number of foreign workers exceeds a certain threshold. The threshold is 1 percent of the total workforce or a maximum of 20 employees, whichever is higher,” it cited.

It further highlighted Chinese firm’s concerns over Indian government policies against them.

India had in the past banned a qualitative restriction on Chinese mobiles, toys and dairy products. Lakhs of Chinese mobile phones without IMEI numbers – a 15-digit unique identity number of cell phones - enter the Indian territory each month. India barred these saying such phones were difficult to track and were being used for terrorist attacks.

Conclusion

Certainly, the visa fee hike is not in the best interest of businesses, be it Indian or American. Since outsourcing is one of the engines of economic globalisation, it is unethical that one country, that too the largest economy in the world which till two years back was the strongest advocate of free market reforms, turns its back on outsourcing and moves towards protectionism. Corporate America sensed the danger lurking behind Obama’s move, and quickly lambasted the anti-outsourcing approach of the administration.

“If such service providers enable US businesses to concentrate on core functions and run more effectively, then US companies can hire more people in the long run,” the US Chamber of Commerce said in its reaction to the visa row.

Though there are talks about dragging the US into WTO over visa fee hike, it looks unlikely given the vast common interests of the two countries. The government in New Delhi might not prefer a prolonged legal battle at global stage with its “strategic ally”. However, business houses enjoy huge clout in both countries. So, it won’t surprise me if both countries come up with an amicable solution to the row for the simple reason that it hits business. And business matters when it comes to the ties between the world’s largest and the second fastest growing economies.

First Published: Wednesday, August 25, 2010 - 15:50

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