US H-1B Visa Fee Hike: A Challenge And Opportunity For Indian IT

The latest US H-1B visa regulation, branding a substantial $100,000 fee increment for new applications effective September 21, has drawn attention from entities like Indian IT firms. According to a Morgan Stanley report, while the initial impact seems maintained, looming medium-term challenges depict a spike in operational costs and localization requirements.

Signed by US President Donald Trump, the fee appears set for a 12-month stretch with options for renewal. Fortunately for existing visa holders and already approved petitions, the change applies only to future applicants. Indian IT firms, which significantly represent H-1B allocations, might confront a higher cost matrix as visa renewals kick in over a three to six-year horizon.

Morgan Stanley's research indicates that the EBIT margins could experience a gross decrease between 10 to 120 basis points. However, strategies like offshoring and pricing renegotiations could limit the net impact to about 50 basis points. While ER&D-focused companies report minimal impact, mid-cap firms feel pressure, whereas large enterprises benefit from diverse operations.

Historically, Indian IT has been reducing reliance on US visas, enhancing local presence in North America and Latin America, especially throughout the pandemic. This trend is likely to continue under the current fee structure, de-risking business models from visa-based vulnerabilities.

The report argues that additional costs might transition into client pricing adjustments since this issue encapsulates the entire industry. Furthermore, increased offshoring could help disperse new financial strains. In the long view, the H-1B fee adjustment might fast-track transformations in delivery models, offering prospects for businesses embracing offshoring approaches.