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Indian IT industry facing layoffs as conditions worsen, warns Assocham

Trump unveiled his ‘Buy American, Hire American’ program yesterday

Indian IT companies are bound to see “some laying off” of their work force back home due to various negative forces impacting the industry, Assocham — an association of various industries — warned.

“With the US tightening the norms for H-1B visas under the President Donald Trump’s ‘Buy American, Hire American’ campaign, the Indian IT companies are bound to face disruptions by way of higher costs and even some laying off work force back home, as the rising rupee is aggravating the situation further for the technology export firms,” Assocham said in a ‘paper’.

“Nearly 86% of the H-1B visas issued for workers in the computer space go to Indians and this figure is now sure to be scaled down to about 60 % or even less,” it said, reacting to the order signed by President Donald Trump of the US yesterday.

Donald Trump unveiled his ‘Buy American, Hire American’ program yesterday, asking his officials to put an end to the practice of companies using lower-paid Indian IT engineers to replace higher cost professionals in the US.

As the cost pressure would increase, aggravated by rising rupee leading to lower realizations, the Indian IT firms may be forced to displace work force.

“In that case, the chances of layoffs are real,” the ASSOCHAM Secretary General Mr D S Rawat cautioned, while impressing upon the IT industry apex bodies and the government to work out a joint strategy to deal with the unfolding situation. In the last three months, the Indian currency has gained by at least five per cent against US dollar, reducing net realizations for software exporters, among other export –oriented sectors.

The warning has also come as reports suggest that Wipro, one of the largest outsourcing companies in India, is likely to accelerate its employee right-sizing efforts in the coming days.

Trump’s move would also impact India’s economy as remittances from US would decline hurting the balance of payment, the association warned.

“World bank data showed the U.S was the second largest source of remittance for India in 2015, behind Saudi Arabia, and about $10.96 billion-nearly 16 percent of the total inflows were sent to India. ASSOCHAM expects it to disturb the balance by 8-10%,” it said.

“After all, our stakes are quite high. It is a question of USD 100 billion software export industry that employs over four million people and reservations for H1B visa for start-ups with less than 50 employee will decrease the number of visa available for Indian firms.

According to the ASSOCHAM paper, the reverses resulting from the tightening of the H1B visas would force IT giants to create fundamental changes in their strategies in terms of hiring, salaries, jobs, impacting employees in India too.

The move would also have an adverse macro impact for the Indian external sector economy. Remittances from US would decline hurting the balance of payment. World Bank data showed the U.S. was the second largest source of remittance for India in 2015 with USD 11 billion – nearly 16 percent of the total inflows. “We expect disturbances in remittances by 8-10%”, the paper said, adding there would be fewer opportunities for individuals to work on offshore location.

With the UK already hiking the minimum wage requirement to £35,000 for tier-2 visa immigrants, this latest move by the US will act as a definitive dampener to the Indian outsourcing industry.

The alternate solutions for the Indian outsourcing industry are: investing in “near shore centres” – facilities close to the US, focus on local hiring in America and to work virtually, which is becoming easier with the wider adoption of cloud services and greater digitization.

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