Public Policy June 3, 2009, 12:01AM EST

Work Visa Bill Threatens Indian Outsourcers

A controversial "50/50" provision in the Durbin-Grassley visa reform bill could hurt Indian outsourcing firms. Advocates say it will save American jobs

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Editor's Note: This story is the third in an occasional series examining the role of immigration amid economic recession.

A new bill in Washington aimed at tightening the rules for companies in the U.S. that hire skilled workers from abroad could threaten the business model for outsourcing firms such as Wipro Technologies (WIT), Infosys Technologies (INFY), and Tata Consultancy Services (TCS.BO). Top executives at those firms say the legislation could also escalate into a trade dispute between India and the U.S.

The bill, introduced by Senators Dick Durbin (D-Ill.) and Charles Grassley (R-Iowa), would change many of the rules companies must follow to obtain temporary work visas, known as H-1Bs and L-1s. The most controversial new rule would bar companies with more than 50 U.S. employees from getting any additional work visas if more than 50% of their U.S. workforce is made up of H-1B or L-1 visa holders.

The 50/50 Rule

Grassley says the "50/50" provision would help protect American jobs at a time of rising unemployment. "The original rationale [for the visa program] was that we needed to allow importation of managers and technical people when there weren't enough Americans available," he said in an interview. "It seems to me ridiculous that companies now have more than half of their workers on [these visas] when there are certainly a lot of workers in the U.S. who can fill in some of those positions."

Som Mittal, president of the NASSCOM trade group that represents India's software and services companies, says the Durbin-Grassley bill has some valuable elements, including tougher oversight to prevent visa fraud. But he says the 50/50 provision is misguided and dangerous. If enacted, the legislation would stop virtually all of the major Indian outsourcing firms from bringing new employees into the U.S., jeopardizing their work for American clients. "Both U.S. and Indian industry would suffer," says Mittal. "A lot of disruption would happen."

Azim Premji, executive chairman of Wipro, says the Indian government is likely to take action if the legislation passes in its current form. The technology-services sector is critical to India's economy, with software and services together accounting for about a quarter of the country's exports. "There is no way our government can take it lightly," says Premji. "It's a vital piece of the economy." NASSCOM and its member companies are also making their case to American lawmakers and the Obama Administration.

The Indian Outsourcing Model

The work visa program was established nearly 20 years ago to allow U.S. companies to bring workers with rare skills into the country. Among the most active participants are Microsoft (MSFT) and IBM (IBM), as well as Wipro, Infosys, and Tata. But American tech companies tend to use work visas differently than Indian outsourcers. While companies like Microsoft and Google (GOOG) often use the temporary visas as a stepping stone to permanent residency for talented workers, outsourcing firms typically post visa workers in the U.S. on a short-term basis, in many cases about 18 months. The workers then return to India, where they continue to work for the outsourcer on behalf of U.S. clients.