Top tier Indian IT outsourcing majors could brace up for an increase in business costs, in addition to an increase in local hiring for US government projects, on the back of President Donald Trump’s recent order that bans technology workers on H-1B visas from replacing American citizens in federal government contracts.

Trump signed an executive order which will make it harder for Indian tech players with H-1B visa workers to get government projects. What’s at stake is federal IT spending of nearly $88 billion, for 2020, according to data from the Office of Management and Budget, which is the largest office within the Executive Office of the US President.

This order will impact software exporters such as TCS, Infosys, Cognizant, Cyient who work with the US government. Industry watchers expect that while it is still early to gauge the impact completely, in the near term, companies will have to brace up for a rise in costs and up the ante in local hiring.

Indian companies declined to comment. TCS has set up offices in the US to work with US government certified contractors. Similarly, Infosys Public Services, a subsidiary of Infosys, is a prime contractor for US government projects and recently partnered with Rhode Island for a project. TCS and Infosys also work with Boeing, GE and others who are certified US government contractors.

Local hiring

“As this order back-dates to 2018 and 2019, we are expecting costs to go up as a result of local hiring and restrictions on moving it offshore,” said a veteran executive from a top software services company. He was referring to the clause which states: “the Executive order directs the heads of each federal department and agency to review the use of offshore services as well as temporary foreign labour (H-1Bs, L-1s) in the execution of contracts awarded in FY 2018 and 2019.” While companies do not give a detailed breakup of the number of employees working in the US, over the years, TCS, Infosys, Cognizant and Wipro, on an average have 50 per cent of their international workforce as locals.

Hiring locally could increase the cost of doing business by another 30-50 per cent, industry watchers opine. “This increase comes at a tough time, and we are weighing our options,” the senior executive said.

Also, in almost every federal project, there are very stringent participation requirements, which mandates many levels of security certifications. “Security clearance protocols and clearance requirements (in terms of information access) will go up another notch,” according to Vikram Ahuja, cofounder, ANSR, an outsourcing company. According to Poorvi Chothani, Founder of LawQuest, an immigration firm, this could result in more local hiring, but she estimates that costs won't go up that much if they can find similar talent at similar salaries. This refers to a shortage of STEM talent in the US. "What they need to watch out for is government projects not getting expensive over time," she said.

Trump’s order also comes on the back of an increase in fees for H-1 and L-1 visas.