US Election 2024 | Second term for Trump likely to have limited negative impact on Indian IT sector: Report

Donald Trump took to stage to on Wednesday to declare victory and pledged to bring a “golden age" to the United States. Former President Donald Trump has gained 267 electoral votes — just four away from the 270 he needs to be elected 47th President of the United States.

Donald Trump has won crucial swing states, North Carolina and Georgia, bolstering his path to 270 electoral votes. Kamala Harris has won Virginia and Hawaii, adding to her earlier victories in Democratic strongholds like California, New York, and Illinois, as per the recent media reports. 

The election's outcome will shape not only U.S. domestic policy but also have extensive global repercussions. It could significantly impact international trade dynamics, foreign relations, and the broader economic landscape.

Furthermore, with the U.S. President wielding considerable influence over immigration policies, this election outcome is also critical for the future of employment-based immigration, which could affect a wide range of industries.

During his first term, former President Trump enacted Executive Order 13788, “Buy American and Hire American,” which increased restrictions on H-1B visas and led to a notable rise in H-1B and L-1 visa denial rates.

According to global brokerage JM Financial, these measures had a pronounced impact on Indian IT services companies, which were highly reliant on these visas at that time.

The brokerage analysed USCIS data on initial approvals and denials for H-1B and L-1 A/B visas over the past decade, noting a significant increase in initial H-1B denial rates from 4% in 2015 to 17% in 2019. L-1 A/B denial rates also surged by 12 percentage points to 28%.

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The analysis further highlighted that denial rates have dropped to decade lows under the Biden administration. However, a potential Trump administration could trigger a reversal, with stricter policies possibly driving denials higher again. 

The brokerage noted that major IT services firms now have a much lower dependency on these visas, providing substantial insulation. 

It estimates that, as of FY17, around 65% of Infosys U.S. employees relied on H-1B and L-1 visas. This fell below 50% in FY20 and is likely to have trended down. Infosys' 'expand localisation' strategy has been a key part of its approach. Similarly, Wipro reported 69% of the global workforce as localised in FY20. 50-80% reduction in H-1B visa approvals for Infosys, TCS, and Wipro over the past 10 years also reflects lower visa dependence, it stated.

Additionally, Trump’s previous administration attempted to increase wage obligations for H-1B visas through a Department of Labor rule in 2020, though it was later vacated in court. JM Financials' analysis suggests that average wages for H-1B roles are now 25% above the prevailing market wages, which may lessen claims that H-1B employees displace U.S. workers due to lower costs.

Limited impact

On a positive note, Trump’s proposal to reduce the corporate tax rate for domestic production from 21% to 15% could benefit IT services demand by alleviating budgetary constraints for US firms. The Tax Foundation, a non-partisan think tank focused on US tax policy, estimates that Trump’s tax policies could have a positive impact on the country’s long-term GDP.

JM Financial believes that, overall, a Trump presidency would have a limited negative impact on Indian IT firms, while a potential Harris administration would largely maintain the current policies.

"We looked at three bills associated with employment-based immigration that are currently tabled in the US Congress. These bills aim to protect the US workforce while prioritising highly skilled workers for employment-based immigration and improving the overall process (e.g., reducing application backlogs). These could, at worst, increase compliance requirements for Indian IT services, in our view. The US presidential election might have limited bearing on the passage of these bills, though," said the brokerage.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.