Trump's H-1B visa fee hike has hit India’s youth where it hurts: Their career dreams

Indians account for more than 70% of all H-1B visas. A steep $100,000 entry fee, paid by employers, for every foreign worker entering the US under the programme will effectively gut it, forcing large outsourcing companies such as Infosys to rethink their business strategy.

What should worry the Indian government more is how the new rule is being implemented. Introduced on 21 September as a travel restriction, it had the appearance of an economic sanction, an escalation of the ‘punishment’ that Trump has meted out to a staunch ally in recent months.

First came a 50% duty on merchandise exports: Washington told New Delhi that its 25% reciprocal tariff was being doubled because its purchases of Russian oil were helping to finance Vladimir Putin’s war in Ukraine.

Having effectively lost access to its biggest overseas market for textiles, gems and jewellery, shrimp-farming and other labour-intensive industries, India was hoping to soften the blow with a tax cut for domestic consumers, lined up to coincide with this week’s start of the annual Hindu festive season. Washington’s curbs on white-collar talent seem to have poured cold water on that mitigation strategy too.

Trump’s move left many middle-class Indian families in extreme anxiety over the weekend. H-1B visa holders who were overseas on work or holiday were told by their employers to make it back before 12:01am Eastern time on 21 September. Those who failed to beat the deadline could get stranded indefinitely. Or their spouses and children might.

By the time White House Press Secretary Karoline Leavitt clarified that the entry fee is a one-time payment, which would only apply to the next H-1B lottery and not to current visa holders, the damage was already done. To immigrant families, an already-arduous pathway to permanent US residency will look like an impossible dream now. Even many employees currently in the US would ask companies to move them elsewhere. But where?

The US tech and finance industries have at least a couple of options besides mass relocation of foreign-born talent. They could challenge the legality of the entry fee. They could also seek carve-outs. Silicon Valley and Wall Street could, for instance, lobby to exempt foreigners with US college STEM degrees. Hospitals that rely on H-1B to ease a shortage of doctors may also make a strong case to retain cost-effective access to foreign-born residents.

Other strategies also seem possible. Recent research shows that when faced with shocks to the H-1B programme in the past, employers substituted talent with transactions. They stepped up acquisitions, particularly of small local targets in places with a high concentration of skilled workers. If visa restrictions prevent a company from hiring the kind of manpower it needs, it can always find similar talent—foreign-born or local—at another business, which it can then acquire.

For India, the problem is much bigger. By adding services to a trade war that New Delhi didn’t see coming, Trump may have done more than shave off a few percentage points from outsourcing firms’ margins.

A quarter-century of closer political alignment with the US had a solid economic foundation. Just as the likes of Apple helped turn China into the world’s factory, large US firms propelled India’s rise in software services exports.

That business model is already facing an existential threat from artificial intelligence (AI). Generative AI may be making top programmers more productive, but it’s also hacking away at entry-level jobs. At the same time, US lawmakers are considering legislation that would impose a 25% tax on American companies for payments made to foreign workers for services consumed in the US.

What makes the latest targeted punishment by the Trump administration doubly dangerous is that it’s taking place against a backdrop of high youth unemployment and unrest in neighbouring countries like Sri Lanka, Bangladesh and now Nepal.

It’s a tricky time for Washington to repel India from its geopolitical orbit, and to take away opportunities from the world’s biggest cohort of youth—one by one.

In a televised address on Sunday, Modi struck an optimistic note. The reduction in the GST from Monday “will accelerate India’s growth story," he said. However, with wages under threat for both blue- and white-collar workers in India, Indian consumers might be wary of making big-ticket purchases. Trump’s actions may have made sure of that. ©Bloomberg

The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.