Chance to make H-1B curbs irrelevant

US President Donald Trump recently signed a proclamation titled ‘Restriction on Entry of Certain Non-immigrant Workers’, imposing a $100,000 fee on H-1B visa applications filed on behalf of workers currently outside America. The order will remain valid for 12 months — and it may be extended.

The sudden announcement created panic among H-1B visa holders who were travelling outside America. Many took flights to return immediately before the rule came into force. Then, the White House clarified that the restriction did not apply to current H-1B holders or to applications filed before the specified date. It also said that case-by-case exemptions may be granted if the hiring was considered in the national interest or posed no threat to American welfare or security. The White House fact sheet said the new measure was necessary to curb abuse of the H-1B programme, prevent displacement of American workers and reinforce wage protections.

The decree is likely to impact American companies, particularly in technology, finance and consulting sectors, which rely significantly on H-1B visas to bring in specialised skills in software engineering, data science, etc. Large companies will either relocate some roles overseas or hire more domestic graduates. They might encourage remote work so that talent remains outside America but can still contribute to US-based projects. Technology companies are assessing the damage the new measure can cause.

Tech stocks on Wall Street have remained relatively steady in the immediate aftermath, with only some companies heavily dependent on H-1B labour under pressure. In the long run, if key technical roles become costlier to fill, innovation cycles may slow down.

Although the initial reaction to the Trump move in India was that of extreme shock, subsequent clarifications have brought much relief to IT services companies that cater to American clients. Typically, Indian outsourcing firms provide IT services to the American banking, finance, insurance and healthcare sectors. They do this both onsite (posting Indian engineers to work with clients in America) and offsite (employing engineers in India to work for American clients). Large services and development projects usually have both onsite and offsite components.

When the data communication infrastructure was not developed in India and Indian firms were yet to gain the confidence of their clients in the 1980s, all the work used to be done onsite. Groups of Indian engineers would go to America and work with the clients there — a practice known as ‘body shopping.’ Indian firms have come a long way, progressively reducing the proportion of onsite work. The new visa rule could bring down onsite work to a bare minimum. In any case, the number of H-1B employees is only a fraction of the total headcount of the Indian IT industry. So, the overall impact is going to be marginal.

As American and Indian firms adjust their strategies following the new visa rules, the larger questions relate to the future of the Indian talent pool in STEM (science, technology, engineering and mathematics) streams. Given the large number of graduates, postgraduates and doctorates Indian universities and colleges produce in STEM, India has become a favourite hunting ground for the recruitment of talent for American companies.

In the 1960s and 1970s, the talent from IITs and other elite institutions used to migrate to America, as Indian graduates did not have suitable opportunities here, and America welcomed them with open arms. Over the decades, many of these graduates have reached top positions in leading US corporations, universities and research laboratories.

Now, global companies hire Indian talent for their engineering, R&D and technology development centres right in Bengaluru, Hyderabad and other hubs. No doubt, cost arbitrage has always been a significant factor, but now corporations are hiring in India for the quality of the workforce and scale as well. Even large pharmaceutical, aerospace giants and automobile firms are setting up centres in India to take advantage of the Indian STEM pool. This explains the boom in R&D outsourcing from India and the establishment of mega development centres by top tech firms such as Google, Amazon and Meta in Indian cities.

The Indian STEM pool is generating patents, new processes, products and semiconductor designs for their parent companies while working for American and European firms operating from Bengaluru, Hyderabad, Mumbai, Noida, etc. This is great as it generates high-class employment, brings foreign investment and contributes to the development and growth of the tech ecosystem. However, it is the same talent pool which is critical for India to gain an edge in technology and innovation.

The benefits of the intellectual property generated by Indian techies in India centres of MNCs accrue to the parent companies. The same STEM pool can help generate patents and wealth for Indian corporations, provided they are willing to invest in R&D. India spends less than 1 per cent of its GDP on R&D, and the share of the private sector is abysmal.

As we move ahead, the quality of the STEM workforce also becomes critical. A study has found that fresh engineering graduates in China and America have a big head start over those from India and Russia in terms of critical thinking. Chinese graduates also have better skills than their counterparts in India and Russia in maths and physics. Such a comparatively poor show of Indian engineers may be due to an overemphasis on rote academic learning at the expense of higher-order cognitive skills, the study has concluded.

If India aspires to be a leader in technology development, as is often projected in the rhetoric of government officials, it can’t ignore the basics. We need enhanced and focused investment in fundamental research in universities and research institutions, private sector investment in R&D, improvement in the quality of education in elite and non-elite educational institutions and a clear pathway to develop quality STEM manpower for the benefit of India. This is the only way to make blips like the H-1B curbs irrelevant.

Dinesh C Sharma is a science commentator.