Indian IT firms build guardrails as Trump's tough H-1B policies loom again

These proactive steps respond to the increasingly restrictive immigration policies that characterised Trump’s first term in office.

According to the Indian IT services lobby group NASSCOM, the US is the largest market for India’s $254 billion tech sector, and its overall contribution is $80 billion to American GDP.

Countering tighter immigration policies

During his previous administration, the H-1B visa programme faced unprecedented scrutiny, with denial rates climbing dramatically from 6 per cent in 2016 to a peak of 24 per cent in 2018. This trend highlighted a significant tightening of immigration processes, including higher application fees and stricter evaluation criteria.

Indian IT firms, recognising the risks posed by these policies, have strategically adapted their operations to reduce their dependency on H-1B visas while maintaining their competitive edge in the US market.

“Reports suggest that Indian IT companies based in the US have already reduced their usage of such visas by 56 per cent over the past eight years, preferring to hire domestic workers. This should limit the fallout from tighter immigration norms under Trump 2.0,” global financial services company Nomura said in its research report.

Over the past decade, Indian IT services companies have meticulously adapted their strategies to navigate the evolving challenges of US immigration policies, particularly concerning the H-1B visa programme. This transformation has been driven by the dual forces of regulatory uncertainty and the necessity to align business models with the realities of an increasingly scrutinised immigration environment.

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Local hiring

One of the most significant changes has been the steady reduction in dependency on H-1B visas.

Indian IT firms, historically reliant on this programme to place skilled professionals in US operations, have diversified their workforce to mitigate risks. Local hiring has emerged as a cornerstone of this strategy. Companies like TCS, Infosys, and Wipro have established strong recruitment pipelines within the US, not only to comply with stringent immigration norms but also to enhance their onshore presence.

“All players have ramped up local hiring in the US. The majority of their US employees are now not dependent on visas (local/green card holders). This indicates that Indian IT companies have already started mitigating H-1B visa dependencies risks by increasing local hiring,” a report quoting JM Financials said.

This local talent infusion has allowed these firms to cater to client demands more seamlessly while reducing the administrative and financial burdens associated with H-1B petitions.

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Other measures

In tandem, these companies have expanded their operational footprints by setting up nearshore delivery centres in locations like Canada and Mexico. These centres are a strategic alternative to the traditional offshore-onshore model, offering proximity to US clients without the complications of visa approvals.

Back home in India, the emphasis has been on scaling operations in Tier-2 and Tier-3 cities, leveraging the country’s vast talent pool and improving cost efficiencies. The past eight years have also seen Indian IT firms reassess their reliance on subcontractors. While subcontracting was once a favoured approach for managing fluctuating project demands, the rising costs associated with this model have prompted a shift toward internal talent development.

Companies have invested heavily in upskilling programmes, focusing on high-demand areas such as artificial intelligence, cloud computing, and cybersecurity. This shift not only enhances the capabilities of their workforce but also strengthens their competitiveness in securing high-value projects.

The backdrop to these changes has been the increasingly stringent immigration landscape in the US, particularly during Donald Trump’s first administration.

Trump's return

H-1B denial rates had surged at that time, peaking at 24 per cent in 2018, compared to just 6 per cent in 2016. The introduction of higher fees and more rigorous documentation requirements further underscored the challenges faced by Indian IT firms.

With the prospect of Trump returning to office, industry observers, including analysts from Nomura, anticipate a continuation of these restrictive policies, potentially including a reduction in the annual visa cap and stricter wage requirements for visa holders.

“India could be adversely affected by tighter immigration policies. Indian nationals received the highest number of work visas (H-1B visas) from the US, accounting for over 72 per cent of the visas issued in FY23 — the latest naturalisation statistics (FY23) from the US rank India second after Mexico. Consequently, Indian Americans are emerging as an essential political bloc in the US. So far, the Trump campaign seems to have prioritised action against illegal immigration, particularly across the land borders. Still, even the legal immigration regime for professional workers and students could be tightened,” Nomura said.

What it means is that the increasing prominence of Indian Americans underpins this strategic shift as a political bloc in the US. While immigration policies remain a contentious issue, the growing influence of this community may serve as a moderating factor against overly restrictive measures.

Emerging trends

Looking ahead, Indian IT firms are well-positioned to capitalise on emerging trends, such as the rise of Global Capability Centers (GCCs) in India. These centres allow US companies to access skilled Indian talent while circumventing immigration-related constraints.

Additionally, tighter immigration norms could inadvertently boost outsourcing as US firms struggle to meet their talent needs domestically.

At the same time, analysts say that with Trump planning to bring down corporate tax, US corporates might use the extra money to spend more on digital investment and outsource the contracts to Indian IT services companies.

"If US companies have to pay fewer taxes, they can probably spend more on digital investments since many firms have allocated limited budgets in the last two years. This suggests that corporate tax cuts could lead to increased spending in IT projects, benefiting Indian firms,” according to Pareekh Jain, CEO of EIIRTrend, as per a report.

Whether through local hiring, operational diversification, or workforce upskilling, these firms have not only mitigated their exposure to immigration risks but also fortified their long-term competitiveness.

As the industry braces for potential shifts under a new US administration, it does so with a playbook honed by years of experience navigating an uncertain landscape.