Indian IT revenue is expected to grow by 7-8% in dollar terms during fiscal 2020, helped by double digit growth in digital services. However, operating margin is forecast to decline 30-80 bps (basis points) for the sector this year as local hires increase for onsite jobs, said Crisil Research.
Local talent comes at an additional cost of 25 to 30% compared with the salaries paid to H-1B holders deployed onsite. Traditionally, the sector had relied on labour arbitrage for maintaining margins, but that gap had been narrowing owing to various market forces — mainly, changing U.S. policy stance towards H-1B visas.
“Employee expenses, which account for nearly 60-65% of total operating costs and cost per employee for tier 1 players, rose faster at about 17% and about 9% on-year in fiscal 2019, respectively, compared with about 6% and about 3% a year before. For mid-tier players, the increase in employee expenses were about 13% on-year for nine months ended December of fiscal 2019 as many are yet to declare fourth quarter results,” it said in a report.
Such a rise in staff costs can be attributed to tightening of visa norms for Indian players, resulting in higher onsite costs for them.
Ever since the U.S. government tightened its H-1B visa norms in 2017, challenges had mounted for the sector.
That year, Indian-origin employees were the largest consumers of H-1B visas at 63% of initial employment, so the sudden change meant fulfilling onsite client requirements became tough.