Indian Outsourcer's Settlement With the U.S. May Hurt Indian Outsourcers in the U.S.

The Infosys campus in Electronics City, Bangalore, India Photograph by Sanjit Das/Bloomberg

It was an embarrassing day for one of India’s premier outsourcing companies. Bangalore-based Infosys, the country’s second-largest exporter of software, will pay a $35 million fine to the U.S. government, settling an investigation of charges that Infosys misused visas in order to get around immigration rules, Bloomberg News and the Wall Street Journal both reported on Tuesday. The company is “in the process of completing” a settlement to resolve a U.S. investigation of the company’s use of visas, Infosys said in statement.

The size of the settlement is no surprise because Infosys earlier this month said it had set aside that amount of money for a potential settlement. A formal announcement of the deal will come later today; since Infosys is traded in Mumbai, Indian investors already had a chance today to weigh in on the news. They did not seem perturbed, with Infosys stock largely flat on the day.

That’s because Infosys and other Indian outsourcers have adjusted their hiring policies in response to the heightened scrutiny surrounding work visas, according to Ankur Rudra, an analyst in Mumbai with Ambit Capital. Infosys was under investigation for using short-term visas, called B-1s, for workers from India going to the U.S. instead of the standard H1-B visas. Those H1-Bs can be hard to get because the U.S. caps the number available, so it’s easy to see how an Indian company could be tempted to turn to B-1s, which are much easier to obtain.

Infosys called claims of fraud, misuse of visas, and immigration abuse “untrue and unproven,” and said in an email that its policy requires adherence to laws, rules and regulations everywhere it operates. “We continue to take our compliance obligations seriously,” a spokesman wrote.

In the two years since the allegations first came to light, Rudra says Infosys and its Indian competitors have reduced their reliance on short-term visas. Instead, companies are hiring more workers in the U.S. for projects. Those hires now account for about 4.5 percent to 5 percent of revenue, compared to 3.5 percent two years ago, he says.

Turning to the contract market in the U.S. isn’t ideal for Indian outsourcers. “If companies cannot get talent from India on H1-Bs or short-term B-1s, they have to hire from the contracting market in the U.S.—and that’s one of the most expensive ways of accessing talent,” says Rudra.

The timing of the settlement might still prove damaging to Infosys and the rest of the Indian outsourcing industry. Immigration reform in the U.S., after months on hold during the government shutdown and debt-ceiling crisis, may be back on the agenda in Congress. President Obama has called for action on reform and as Bloomberg View editors wrote today in a story headlined “Immigration Reform Isn’t Dead Yet,” work is underway on several bills in the House. The bill passed by the Senate includes provisions that would likely penalize Indian companies by making visas more expensive, according to industry trade association Nasscom. Employees who manage to get visas would have to work under restrictions limiting their ability to work with customers on-site.

Such provisions are “show stoppers,” Nasscom President Som Mittal told me in an interview in late August. Indian outsourcers are hoping that anything that emerges from the Republican-controlled House won’t include visa restrictions that many U.S. tech companies also oppose. Not only would the Senate’s bill “negatively impact Indian service providers,” he say, “it has negative impact on [U.S. companies] as well.”

However, as the government shutdown debacle demonstrated, the Tea Party and the U.S. Chamber of Commerce are not on the same page these days. If the debate about immigration does heat up in the coming weeks, the Infosys settlement may not be helpful to the cause.

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