ECONOMICS MAY 24, 2013
As the Senate Gang of Eight's immigration reform bill lurched towards passage in the Judiciary Committee earlier this week, one compromise on high-skilled visas was particularly key: making it harder for Indian technology services companies to do business in the United States.
American technology companies, as has been amply documented, have lobbied to bring many more skilled foreign workers over on temporary visas. Right now, Indian firms like Tata, Wipro, and Infosys take up most of those visas, in order to provide flexible IT services for giant corporations. The Senate bill increases the overall visa cap, but it also subjects these Indian firms to a host of new fees and restrictions, including not being able to place workers at client sites, having to reduce their overall percentage of foreign workers to less than half by 2017, and having to prove that each foreigner hired will not displace a domestic worker for six months before and after his or her employment begins and ends. It would force them to radically change their business models, raising the prices they charge their their Fortune 500 clients (They’re already charging a lot: Tata did $5.3 billion in revenue in North America in 2012, while Infosys did $4.3 billion).
Guess who's really happy with the new system? The U.S. tech companies, which now not only won't have to compete with the Indian companies for visas, but will also be able to steal some of their business. That's why they lobbied for the change, demonizing the Indian companies for abusing the visa program. "Enforcement and restrictions will be most effective if they are focused on the users whose workforces are most dependent on H-1B visas or that show a disregard for the rules," Microsoft's Brad Smith told the Judiciary Committee in April, before ticking off a list of ways in which Indian companies—or “H-1B dependent” companies, almost all of which are Indian—could be treated more harshly. "This is wise policy."
That comports with Senator Dick Durbin's understanding of Indian companies as fraudsters that charge their workers for the privilege of living in America for three years, undercutting wages for locals. But it's also wrong. While there has been some shady business in the past, Indian companies typically comply with prevailing wage requirements, and—just like American companies—efficiently fill a gap in an education system that hasn't caught up to the needs of the new economy. If big financial services firms, retailers, insurance companies, hospitals and manufacturers are deprived of their services—like running the backend of a medical records database, for example, or a billing system for a major retailer—they might grow other parts of their business more slowly, making it even harder for U.S. workers to find jobs.
More alarmingly, targeting Indian companies for special opprobrium may violate international trade agreements, and has already increased tensions in the until-now copacetic U.S.-India relationship.
"It's a serious matter for India," said Som Mittal, head of a major trade association for Indian tech services companies. "Anything discriminatory will equally impact the trade relationship between India and the U.S. The U.S. administration should remember that Indian workers have been significantly contributing to the growth of its economy." The Indian ambassador wrote an op-ed to that effect in USA Today and personally raised the issue with Senator Bob Menendez, and the finance minister complained about it to U.S. Treasury Secretary Jack Lew. It’ll certainly make things awkward when U.S. Secretary of State John Kerry goes to India later this summer.
At the moment, though, Indian companies have almost no leverage over the policymaking process. Some have hired lobbyists, and the Chamber of Commerce-sponsored U.S. India Business Council is planning to launch a public relations push later this week (they declined to comment in advance of the official rollout). In order to make legislators care, they're counting on their large clients—everyone from Walmart to Goldman Sachs—to speak up on their behalf.
"Based on our conversations in Washington, as well as our conversations with our clients, there is a clear understanding that the legislation as written would severely damage the U.S. economy, cost a tremendous number of high-quality jobs and create significant diplomatic and international trade challenges," said the CEO of Cognizant, a New Jersey-based company that relies heavily on Indian employees, on an earnings call with analysts who were very concerned about the bill's potential impact. "We are highly confident that our clients will weigh in on the issue at the appropriate time."
But they haven't so far, in large part because nobody wants to advertise their dependence on overseas labor. "They basically have no friends in Congress," says Neil Ruiz, a senior policy analyst at the Brookings Institution. "The dilemma that we have here is that for the users of Indian IT companies, which are associated with outsourcing in America, they kind of have a bad name here, and nobody wants to be associated with them."
Making matters worse—and this may be another reason why U.S. companies pushed for the outsourcing companies to be treated differently—the Indian government itself hasn't behaved all that well from a free trade standpoint. Last fall, it passed a national electronics policy that largely cuts foreign firms out of government contracting and some private business, drawing shrieks of protest from American companies that do business in India.
That might be a wrongheaded strategy for domestic economic development. But it's no excuse for using an immigration overhaul to continue a protectionistic pissing match that hurts both economies—even if it makes a few American companies even happier than they already are.
Lydia DePillis is a staff writer at The New Republic.