Indian IT sector may face 6-7% margin erosion as US H-1B visas become unviable, says industry expert

The Indian IT industry is bracing for a significant hit after US President Donald Trump signed an executive order imposing a $100,000 annual fee on H-1B visas, a move that has sent shockwaves across the sector.

Currently, H-1B visas cost anywhere between $1,700 and $4,500, but the sharp escalation has effectively made them economically unviable for most companies that rely on Indian tech talent.

Sandip Agarwal, Fund Manager at Sowilo Investment Managers, estimated the overall hit to Indian IT margins could be in the range of 6–7%. “The top five Indian IT companies have $80 billion of revenue. This year, there are about 10,000 visas. So, 10,000 visas into $100,000 is a $1 billion impact. With an average 20% margin on $80 billion, that’s $16 billion. So $1 billion out of $16 billion is a 6–7% impact broadly. Quite significant, to be honest,” he said.

Bhavin Shah, Founder, CIO & CEO at Sameeksha Capital, was blunt in his assessment: “I think the programme is definitely unviable at this kind of cost, except for very, very select, very high-talent, high-skill situations.” He pointed out that companies will be forced to innovate around delivery models, just as they did during Covid when remote working became the norm. Shah added that while the short-term picture was “more cloudy,” the offshore opportunity for India will strengthen in the longer term.

Vikash Jain, CFO at Hexaware, said the immediate fallout will be tighter travel controls, longer deal cycles and more offshore delivery. “$100,000 per visa is going to make the overall financials not stack up,” he said, adding that companies will initially “urge US-based employees not to leave the country” and will look at offshore centres to maintain operations. He noted that pricing pressures could emerge as companies share the burden with clients, which could push margins lower in the near term.

Investor sentiment has already turned cautious. American Depository Receipts (ADR) of Infosys and Wipro fell in overnight trade after Trump’s announcement. With over 71% of H-1B visas granted to Indians, and tech giants such as Amazon, TCS, Microsoft and Meta relying heavily on such talent, experts believe companies will turn to Canada, offshore centres and Global Capability Centres in India to work around the disruption.

The impact is not limited to business alone. Former Ambassador to the US Meera Shankar warned that the decision could further strain India–US relations, which she described as the “lowest point in decades.” She said Washington’s recent actions — including a 50% tariff on Indian goods and the withdrawal of a sanctions waiver on Iran’s Chabahar Port project — pointed to a deliberate squeeze. “I don’t think the infliction of economic costs and economic pain on India is going to lead to a healthy relationship in the medium or long run, or even in the short run,” she said. Shankar also cautioned that Indians in the US could face tougher visa renewals and green card delays, while America itself risks losing competitiveness.

Below is the excerpt of the discussion.

Q: If you could just tell us what is the current proportion of your workforce on H-1B visas, new hires, and renewals.

Jain: For our company, from a Hexaware perspective, close to 40% of our employee base in the US is H-1B dependent. However, the key point to note here is that this number has been reducing post the pandemic. But what we cannot ignore is that a very large proportion of the employee base in the US is still H-1B dependent.

Q: So, 40% of your American workforce is on H-1B visas, and as a percentage of your overall employee base, what would that number look like?

Jain: That would be pretty low, because from an overall US perspective, we have an employee base of 3,000 over an overall employee base of close to 33,000. So that number is not very significant when you look at it from that perspective. That number would be less than 5% of the overall Hexaware base.

Q: The exact quote of US Commerce Secretary Howard Lutnick regarding the H-1B visa, saying “Stop bringing people to take our jobs.” He emphasised that this $100,000 annual fee is a non-economic measure. It's aimed at protecting American employment rather than generating revenue. But the truth is, for Indian IT companies this is economic, right? Would you be comfortable absorbing a cost of $100,000 for a single visa fee?

Jain: I don't think Congress is going to support that. I mean, $100,000 per visa is going to make the overall financials not stack up. I think what's going to happen from an industry perspective is that everyone is trying to understand the impact of it. My take is companies will impose immediate travel restrictions, and it's going to be something like what we saw immediately post-pandemic, where there was an immediate travel ban. Companies are going to urge US-based employees not to leave the country, and advise new employees to avoid travel until there is more clarity. In the medium term, I definitely see that deal decisions may take longer to close, as companies evaluate the implications of this order—both in terms of delivery and commercial impact.

This is also going to lead to more offshoring. We saw even during the post-pandemic phase that more and more companies were open to the idea of getting work delivered from offshore locations, rather than having engineers work out of on-site facilities.

Pricing could be impacted. We are in an industry where most of the gains from technological advancement are shared with the clients. To some extent, pains are also shared between clients and service providers. Immediately post-pandemic, if you recall, when the cost of labour went up very significantly, the industry did see an increase in pricing, and that was after a long period of time. If this continues, there will be pricing pressures, and there will be a pricing uptick.

But I do have a concern—do we have alternate sources of delivery that can produce the same number of engineers and technical workforce that India has? There is no single country that can do that. So, I think dependency on India will still remain. It's going to be a mix of offshoring, price increases, and more dependence on local hires—a combination of all those.

Q: On average, Vikash, what are the current H-1B visa charges? And do we have clarity on whether the proposed charges are annual and whether they apply to renewals?

Jain: Currently, what we incur varies depending on whether it's a transfer fee or filing cost, which can go up to $10,000–$11,000 per visa. In case of an amendment or an extension, it is anywhere up to $5,000–$6,000 per visa. This new $100,000 is in addition to that. We are still trying to understand which visas this $100,000 applies to. But to the best of our understanding, existing visa holders in the US who do not need to file any petitions are not impacted by this order. However, existing visa holders in the US who need to file a petition—for an extension, amendment, or transfer—will be affected. What remains unclear is the status of existing visa holders who are outside of the US and do not need a petition to be filed. We don’t know what that means, and maybe this will become clearer once the order comes into effect on September 21 at midnight EST. But in anticipation, a lot of companies are imposing immediate travel restrictions, urging US-based employees not to leave the country, or advising new ones to travel into the country right now.

Q: You said 40% of your American workforce is on H-1B visas, but this number has come down. What was the exact number?

Jain: I don’t remember the exact number, but directionally it’s been coming down.

Q: You said the immediate impact is going to be travel restrictions, like we saw during Covid, increased offshoring, and pricing pressure, which you will need to pass on. Net-net, what is the impact that you see on company or industry margins? Will there be pressure?

Jain: There will definitely be short-term pressure, because if this comes into effect immediately, companies will have to start paying on an incremental basis while conversations with clients will take time. So, there will be a timing gap. We don’t know exactly how it will play out, but the impact could be anywhere between 50 bps to 150 bps, depending on each company and how many such visas are coming up for filing. From a petition perspective, it could be very different, depending on how many employees you have in the US versus outside. But in the short term, there is definitely going to be an impact, because companies will have to absorb it immediately, while conversations with clients and reflection on the P&L will take some time.

Q: Would you completely stop sending people on H-1B visas? Is that a viable option?

Jain: Not really. You need to continue to deliver. There are a lot of important projects clients want. If it comes to those selections, I’m sure clients will have conversations with service providers and agree on paying a premium to get it done. I don’t think completely stopping it is even an option.

Q: Sandeep, this is the most dramatic shake-up of H-1B visas I’ve seen since I started covering. First, give us the numbers on how this impacts Indian IT. Have you done any calculations?

Agarwal: All the numbers are there on the USCIS website. The amount has also been very clearly stated by the Commerce Secretary—it is $100,000 per year. Now, I don’t know whether there is some confusion, because H-1B is valid for three years, extendable by another three years. The cost, as I understand and have been tracking this industry for 25 years, varies from $1,700 to $20,000. This new cost is above that. If you take everything at face value, the top five Indian IT companies have $80 billion of revenue. Last year in FY24, there were 16,000 visas; I think it has come down to about 10,000 this year. So, 10,000 visas into $100,000 is a $1 billion impact. With an average 20% margin on $80 billion, that’s $16 billion. So, $1 billion out of $16 billion is a 6–7% impact broadly. Quite significant, to be honest.

The bigger challenge is that people find their ways. More outsourcing will happen over time. Covid taught us how work can be done remotely. Secondly, a lot of GCCs will also come up. Third, Canada will be a big beneficiary, because companies will start sending people there, and they can travel to the US for short trips if required. So yes, the impact is huge in an industry where growth is already weak. Stocks and the industry will take a hit for some time. But execution will still happen, because as the Hexaware CFO mentioned, there is no other source for executing this work today.

Q: So, Sandeep, if you had to summarise, it will be margin-negative in the near term. But in the medium to long term, as talent models get realigned and outsourcing increases, will it be positive for margins?

Agarwal: Yes, 100%. Because with onshore employees, we don’t make much margin. Margins are very low because of minimum wages and compliance. We do it mainly to give client comfort, and in some complex projects we need one or two people there for coordination. But given a choice, no one would like to send people. There is a huge cost in sending employees abroad, and we hardly make any margin except for a few high-value projects. In steady-state projects, margins onshore are very low. Most margins are generated from India.

Q: Bhavin, come in with your perspective. Have you spoken to other IT companies? What have they shared with you about the impact over the near term and medium term? And the question is, does the H-1B visa programme for IT now become unviable?

Shah: I think the programme is definitely unviable at this kind of cost, except for very, very select, very high-talent, high-skill situations. So, yeah, the business model will have to innovate around this. As the other speaker mentioned about Covid, it changed the way we work, not just for offshoring, but even in terms of interaction with companies. I’ve seen that the mindset of companies has changed after Covid, and most are willing to talk on a video call — that was not the case before Covid. So, I think those things will happen, and the business model will adjust to it.

But what’s important to keep in mind is that we already have some factors at play — questions about US economic growth, the impact of Gen AI to some extent, and now this. So, it just makes the picture more cloudy in the short term, but with clear potential for further strengthening of the offshore opportunity for India in the longer term, and maybe some other ways in which companies will innovate to deal with this.

Q: Bhavin, there is also a prevailing wage requirement. Can you explain what that means to our viewers? And what are the implications for employees who currently exist on H-1B visas in the US, who are unaffected as of now? Will the cost associated with them go up?

Shah: In certain situations, this will require additional cost — whether it’s a change of site, renewals, and so on. In that sense, it will go up. And that means that even those who are there, while they may not be immediately affected, some of them may be sent back over time.

Q: First it was a 50% tariff, then the sanctions waiver on Chabahar port, and now this latest salvo from the Trump administration. Are India-US ties worsening to your mind?

Shankar: Definitely. I don’t think the infliction of economic costs and economic pain on India is going to lead to a healthy relationship in the medium or long run, or even in the short run. Clearly, the US has decided to squeeze India economically for whatever reasons it has chosen to. And I think India has to take note of it and devise its own responses.

For instance, US IT companies and e-commerce companies have a free run in the Indian market, including financial payment systems using the UPI platform. The platform was developed by an Indian, but both Google and Amazon have their own payment systems, and essentially they are getting a commission on every financial transaction in India as a result. So, you don’t have to take drastic action, but surely there are limited actions India could take to show that this is not a one-way street.

Q: But can you tell us how India might respond? At the end of the day, diplomatically, we have to protect the interests of our IT workforce there. So, how should we respond?

Shankar: Well, it depends. Clearly, the US has far more leverage than we have. But between doing nothing and signalling that you could do something — you may not do it, but you can signal that if things are not resolved within a certain amount of time, then these actions will come into play from the Indian side.

So, it’s not immediate retaliation, but it’s also not just sitting back and doing nothing. You are signalling that we are willing to discuss, we are willing to talk, but if things don’t work out, this is the kind of action we are contemplating. I think at least the exercise should begin within government to identify where India could take some measures and signal that — not take them immediately, but at least show that these are the measures which could be contemplated in the future if things don’t get resolved.

Q: Do you think this is the lowest point in India-US ties, at least in the last two decades?

Shankar: Yes, I would say this is the lowest point in the last few decades. I think in 1971, when the USS Enterprise sailed into the Bay of Bengal with a view to intimidating India, which was already bearing the burden of 10 million refugees and had decided, after a lot of consideration, to help the freedom fighters of Bangladesh militarily, that was perhaps the lowest ebb in India-US relations.

But in recent decades, ties had grown, the two countries had become strategic partners, and also, what is surprising is that there is no fundamental conflict of interest between the two countries. So, to be singled out by the US for such action seems like a kind of national pique — to assert their power over a more manageable target.

Q: What does it mean for Indians living in the US? Is it legitimate to fear that they could be targeted next?

Shankar: Yes. Those who are on visas would find that getting visa extensions will probably become more difficult. Those who have applied and are waiting for green card processing will probably find that process may become more difficult. But the US will also be depriving itself of talent, and in some ways they may be hastening their decline as well.

This kind of protectionism will weaken the openness that made the US economy innovative, because they were able to attract the best people from all over the world. They had excellent universities and research institutions. But now funding has been withdrawn from many institutions, and universities are being told to toe the political line or face a funding freeze. The entire ecosystem that fueled US competitiveness and made it the strongest economy in the world will start facing challenges, because of closing in on itself rather than opening up to talent.

For India, as your previous speakers were saying, Indian companies will try to find workarounds. In Trump’s first term, already, they had made the processing of H-1B visas quite costly. The previous Obama administration had virtually made it clear that about 50% of workers should at least be American citizens, otherwise higher fees would apply. So, in some sense, our companies have been trying to work around this issue. But we don’t know if it’s going to stop here.

We say this will fuel offshore development or the setting up of global capability centres in India. But will those be targeted next? We don’t know. It seems like a spiralling ladder of actions by the US, partly driven by domestic politics. Trump was elected on a strong anti-illegal immigration platform, on promoting American citizens for employment, on stopping offshoring, on rolling back globalisation. In some sense, President Trump is implementing the agenda on which he got elected.

But it’s selective implementation, because the largest trade deficit the US has is not with India. India has a surplus of about $45 billion in goods, and the US has a surplus of a little over $100 million in services with India. But China has a surplus of almost $300 billion with the US. This is not going to resolve US issues, because they are pussyfooting around their biggest challenge, veering between accommodation and competition. Some strands want to work out a deal with China, focus on homeland security and defence of the Americas, and leave the rest of the world to its own resources. At the same time, the Pentagon is acting contrary to this. So, you see both isolationism and expansionism going on at the same time.

Watch accompanying video for entire discussion.