Forget H1-B, protect L-1

The hope of Indian software companies, that when it came to the crunch the US would reconsider scaling down the limit for issuing H-1B visas, has been belied.

In the new US financial year beginning this month, the annual quota has fallen by two-thirds, to the 65,000 level that existed till 1998. On the face of it, this is a new hurdle in the way of the rapid growth of Indian software, because slightly over half of the revenue of frontline Indian companies comes from on site work. And the US is by far the biggest IT market, accounting for over 60 per cent of the revenue of most active Indian companies.

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The truth is less worrying and must be understood in context. Indian software was as affected as anybody else ever when the technology bubble burst in 2000 and the global economy encountered a brief recession in the wake of 9/11.

Now the US economic activity is picking up with stocks, particularly technology ones, moving up at a faster pace.

But this is turning out to be a case of jobless growth. Naturally, anxiety levels are high about high levels of unemployment despite the up-tick in growth, the situation not being made any better by Americans getting ready to elect another president late next year.

High unemployment in an election year does no politician any good and American ones have predictably opted for what is politically safe as opposed to what would have been good for the US economy in the longer run. Adoption of IT, aided by outsourcing, massively drove US productivity through the nineties.

Fortunately for Indian software, various factors have limited the downside of the latest US action on visas.

First, the cut is not as big as it looks. In the last US financial year, only 79,100 H-1B visas were issued (in 2001 there were 1,63,600 visas).

Even if you assume that the majority of H-1B visas are issued to Indians, the impact on India's software industry will be less than the 14,000 difference between 2003 and 2004. What is more, the world is witnessing an unforeseen wave of off-shoring, and its chief beneficiary is India.

So fewer people will have to work at the premises of the customer to get a particular job done. Additionally, H-1B visas are issued for six years and Indian companies have built up sufficient pipelines to take care of current work and that in the immediate future.

The crunch could come in 2005 if there is a sharp increase in orders and no commensurate rise in visas issued.

What raises anxiety levels, meanwhile, are the growing uncertainties in the US over the future of L-1 visas. These are issued to companies for their staff to work at their branch offices and there is no limit to these.

Individual legislators are now trying to change the rules of the game; if the L-1 route also gets narrowed, then there will be a serious problem.