Rising H1-B Visa costs adds to the woes of Indian IT firms

Hike in H1-B Visa fees by the US government is likely to impact the profitability of Indian IT companies.  The increased visa costs and large number of visa rejections have already affected the profit margin of Indian IT companies including Infosys and Wipro. According to the first quarter results published for the current fiscal year by the IT companies, the hike has adversely impacted their operating margins. It is forecasted that this trend is likely to continue for the next coming quarters also.

U.S. Citizenship and Immigration Services

The most common categories of visas applied by Indian IT companies are H1-B visa and L1 visa. The issues of these visas by the US government are vital for the Indian companies like Infosys and TCS as 60% of their revenues come from US clients. H1-B visas allows intra-company transfer of employees to the offices in US from foreign location and L1 visas, on the other hand, allows the US companies to employ foreigners in specialized positions. According to the US legislation, Indian companies lead the list in receiving the largest numbers of H1-B and L1 visas.

The US Citizenship and Immigration Services (USCIS) decided to increase the visa fees early this march for the second time since 2010. The decision to increase the visa application fees were driven by the increasing demand for H1-B visas by Indian companies. The revised rates for visa applications are as follows:

  1. Application fee for H1-B fees now ranges between $325-2,000 for companies employing more than 50 workers in US.
  2. Additional $500 is charged as fraud prevention and detection fee.
  3. A fee of $1,225 has to be paid for fast processing of visa applications.

TCS have reported that their first quarter financial result was impacted by these new revised visa application fees. Infosys also reported that they have incurred $7 million as visa costs for the quarter ended on March 2012.   The company has incurred about 0.6% of revenues as visa costs for the last fiscal year.

As per the reports released by NASSCOM, the industry body for IT/BPO companies in India, the rejection rate of visas by the US legislative is as high as 40% where majority of rejections take place in L1 visa category. The bodies along with IT companies including Infosys, Wipro and TCS have raised its concern over the issue to the US administration. The companies have been regularly considering these visa-related issues as a risk factor that could decline their revenues.

These steep increases in the application fees have put the companies in India into more trouble who are already under pressure due to the slowdown of US economy. Industry experts are of the opinion that further anticipated changes in immigration rules of US are likely to have an adverse impact on the business growth of these companies. Analysts further feel that the difficult visa norms will affect the ability of the companies to compete and provide better services for their US clients.

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