Markets Will Brace For IT Stock Hit
Lower US interest rates could make emerging markets like India more attractive to foreign portfolio investors
On Episode 684 of The Core Report, financial journalist Govindraj Ethiraj talks to S. Ramesh, former chairman of the Central Board of Indirect Taxes and Customs, Sandip Agarwal, Fund manager at Sowilo Investment Managers LLP as well as Nikhil Varma, Technical Lead, India at Algorand.
SHOW NOTES
(00:00) The Take
(04:12) Markets will brace for IT stock hit
(07:56) The prime minister welcomes a new GST regime, have concerns of business been addressed
(19:42) Is the organic food that you are buying really organic?
(28:21) How much do IT companies really depend on H1B visas?
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday the 22nd of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The Take
The year 2000 or Y2K as it's fondly remembered, was a turning point for the Indian information technology services industry. A global scare that computers would freeze up on the night of December 31st, 1999 triggered waves of anticipatory business for Indian IT companies.
As January 1st, 2000 came and went, the computers transitioned without any real incident. No planes fell out of the sky as some had wanted. The Indian IT sector proved its mettle in keeping systems for critical functions across the world running from banking and telecom to retail and much more.
Whether anything would have actually happened at all when the computer clocks transitioned, we would never know. But Indian IT got a solid foot into the global IT services market. Soon questions were asked about what was next.
Would Indian IT be able to sustain the momentum that Y2K created? What is the future for TCS and Wipro or Infosys? Not that these companies would cease to exist, but could the industry grow like it had so far and stay relevant? The $224 billion industry has faced several near-death moments, including the global financial crisis in 2008 and the shift to digital a few years ago. The industry has survived and grown, to the point that along with BPO or business process outsourcing, according to some estimates, India now controls more than 90% of the global outsourcing market. And that's the level of competitiveness.
But the ground has also shifted in recent years. Many IT majors have been reporting consistent slowing in both top line and headcount. At one level, it's not so surprising given the high base.
TCS, for example, employs over 600,000 people and is the country's largest private sector employer. And there's artificial intelligence, which will surely hit headcount further as automation takes over more manual jobs and processes, including coding. Which brings us to the latest H1B guidelines announced by the United States over the weekend that will force companies to pay up to $100,000 for every fresh H1B visa issued.
Now, there is no doubt that this will put brakes on Indian IT professionals' ability and need to work with clients onshore in the US and make executing projects a little tougher. But Indian IT has had to reckon with resistance to engineers being shipped from India for several years now. Large Indian IT companies have recognised that as responsible global multinationals, they must grow with local talent and also endear themselves to the communities that they work in.
And this has been happening for some time now. While there has not been any specific intelligence on the 100,000 visa rule, every Indian tech CEO, including many I have spoken to in recent years, has been bracing for some version of this crackdown now. The other trend to note is of global capability centres or GCCs.
There are over 1,700 GCCs operating in India, and we could be adding almost one a day in coming months and years. GCCs are also known as captive centres for global multinationals. Many of these multinationals who run GCCs actually started out working with large Indian IT companies and then switched to setting up their own captive centres.
A few weeks before Trump first announced his reciprocal tariffs in April this year, McDonald's, a brand that the President of the United States has selflessly promoted, announced a 2,000-seater GCC operation in Hyderabad. So to come back to H1B, no doubt some Indian engineers will be disappointed as their pathways to migrate to the United States shrink. But their fortunes or misfortunes will have little or no bearing on India's ability to source and grow technology-led businesses from world over, particularly as more opportunities open at home, including with the GCCs.
Unlike Trump's other tariff shocks, this is one that India's IT industry has been prepared for for some time now.
And the top headlines and themes
The stock markets brace for an IT stock hit.
The Prime Minister welcomes a new GST regime. Have concerns of businesses been addressed?
How much do IT companies really depend on H1B visas?
And finally, is the organic food that you're buying really organic?
Will IT stocks take a hit?
The Trump administration's new 100,000 application fee for the widely used H1B visa programme will only apply to new visas, the White House said on Saturday, and will not apply for those who already hold or are renewing their H1B visas, according to the White House. Now, people who were selected in this year's H1B lottery and whose visas will become effective on October 1st will not have to pay this fee. So companies both in the United States and Indian IT companies use these visas to bring in skilled workers into the US.
But more than 70% of those visa holders are Indian. So this background is a little important because the initial announcement appeared to suggest that a fee of $100,000 would be an annual fee, which would of course make it impossible for IT companies to afford given that median salaries for most of them are just above that. H1B visas are valid for three years with an ability to renew for another three.
But the announcement on Saturday caused a mad scramble with several tech giants asking their employees not to leave the United States or return immediately. And then came the clarifications, which was welcome, but there is little doubt that H1B visas will become expensive and prohibitive, which is precisely the intention of this new law. Second, and more importantly, the move is a direct shot at India because like we said earlier, it's mostly Indian engineers who use this H1B visa route to work in the US.
And this has often been the case is particularly harsh. The White House went so far as to call the phenomenon of American workers being replaced with lower paid foreign labour a national security threat. And also said the dynamic is suppressing wages and disincentivizing Americans from choosing careers in STEM fields.
But it's also worth noting that Indian IT companies are not the biggest users of the H1B visa. There is only one Indian company in the top H1B list right now, which is TCS. And if you were to include Cognisant, which is not an Indian company, technically, then it would be two companies.
Amazon is the largest with about 10,044 visas right now, followed by TCS at 5,505, and Microsoft, Next, and Meta, Apple, and Google. So the larger takeaways of this, one, India is continuing to bat on the back foot when it comes to trade with the United States, including now export of skills or scaling services. Second, there is nothing to suggest despite all the recent words and signalling to the contrary so far, that there is any shift in the US stance against India, which is undoubtedly trade antagonistic.
Remember, only Brazil faces 50% tariffs on its exports into the United States, apart from India, of course. Now to the markets, which could start on a weaker note today, coming on the heels of three weeks of gains and followed by some loss in Friday's trade. And much before the weekend shock announcement, IT stocks had fallen on Friday, along with financials.
Just to quickly bring you up to speed, the Nifty 50 was down about 0.4% to 25,327, and the Sensex was down 0.4% to about 82,626 on Friday. Last week, the US Federal Reserve finally cut interest rates by 25 basis points. That was on Wednesday.
Now, lower US interest rates could make emerging markets like India more attractive to foreign portfolio investors. But whether that will happen this time around is something that we have to see because foreign portfolio flows have been negative for a while. The rupee dropped to an intraday low of 88 rupees 32 paise on Friday, which is close to its all-time low of 88 rupees 45, but closed 4 paise higher at 88 rupees 16.
That's one six. Now, the dollar index, which hit a low of 96.22 on Wednesday's interest rate cut day, has recovered to 97.46.
How will GST play out?
Prime Minister Narendra Modi on Sunday said the rollout of GST 2.0 will mark the start of a Bachat Utsava, savings festival across the country, promising lower prices, stronger investment flows, and simpler compliance. He said that tomorrow in the nation, GST Bachat Utsava will commence, and your savings will increase, and you'll be able to buy your favourite things, and it will benefit all sections of society, he said in an evening address on Sunday. So to recap, earlier this month, the GST Council approved a two-tier structure of 5% and 18%, which is effective September 22nd.
That's today, also the first day of Navratri. The 12% and 28% slabs have been scrapped. Almost 99% of goods under the 12% slab now come into the 5%, and about 90% of items under 28% have moved to 18%.
And then there's a compensation of 40% on luxury and sin goods, which includes cars. I reached out to S. Ramesh, former chairman of the Central Board of Indirect Taxes and Customs, or CBIC, and I began by asking him what were the key developments since the Prime Minister's announcement of these GST rate cuts on the 15th of August and today, and also his views on the adjustment of input tax credit for businesses and the anti-profiteering law.
INTERVIEW TRANSCRIPT
S Ramesh: It's very interesting to see the way in which the government has been so responsive to business and industry over the last few weeks. Ever since on August 15th, the Prime Minister had announced the launch of GST 2.0 and yesterday he has also given a very good conversation to the entire country about how this entire exercise will pan out and how it's going to be very very important for the country. Now the developments in the last two weeks you can see are basically on two fronts.
One is the government is having a trust-based approach to the industry. By trust-based I mean that it was not as though the government was not trusting the industry before but now they have shown the eagerness to rely more on what the industry can do. It's more pro-business and it's sort of consumer-friendly what they have done.
They have relaxed a lot of issues which the GST 2.0 threw up in the initial days after announcement. The industry was very concerned about how refixing and relabelling will happen, what will happen to the old stocks, what will be the new price rates. So a lot of relaxations have been announced both by the legal metrology department as well as by the health ministry to ensure that ultimately the consumer gets the right benefit while businesses at the same time are not much impacted.
So a lot of proactive steps have been taken to mitigate any issues which the businesses are facing and to make sure that the rate transmission, rate cut transmission which is primary in this entire GST focus, 2.0 focus is actually done in the ground reality. The government doesn't want to have any punitive or any strong measures like anti-profiteering. They believe in a trust-based mechanism as I told you and they are working towards that in every way we have seen in the last few weeks and going forward.
Govindraj Ethiraj: Right, okay. So let me pick up on two of the concerns that industry had. So one was to do with input tax credit and what happens when companies or let's say dealers have paid more than what they will get back from the customer.
And the second is the anti-profiteering which as I understand had a sunset on the 1st of April but it seems that some people are not very convinced about that. So let's start with the input tax credit.
S Ramesh: Yeah, I think input tax credit issues have been there even earlier when there were rate reductions. It's not something new. It just happened in GST 2.0 and these things were being actually addressed from time to time by the government in various methods. I would like to say that as far as the current GST 2.0 is concerned, the industry is facing three types of GST challenges I would say. I would like to put them into three buckets. One is that the inverted duty structure which means that the inputs are taxed at a higher rate than the output and because of the rate rationalisation which has happened, we find that there's an inverted duty structure which has suddenly come up and being faced by many industries whose rate has now become say at 5 or nil.
So this is the one important issue which the government is addressing and the government needs to address also in future. So for instance, you take pharma. Pharma rates have become 5% on medicines and in some cases it's also zero, zero rate.
Now as you know, pharma has a lot of inputs which are at 18% APIs for instance and R&D services, so many things that are all 18%. So this issue of inverted duty structure is something which is going to impact the industry. The government has assured on its side that they will fast track refunds, they'll make sure refunds are given faster and in a technologically advanced manner.
90% of the refunds will be released within seven days for businesses which are treated as low risk. The second issue, second bucket I would like to say is about embedded taxes. Now this is also closely related to the ITC issue.
Now we have seen that in GST 2.0, a lot of services have come under the 5% bracket. It's very good, especially B2C services. 5% it has reached and when you go as a consumer to a haircutting salon or to a beauty parlour, you find that it's now 5% without ITC. Now this is a very important step which the government has taken to make sure that small and medium businesses do not have to go through the difficulty of maintaining the details of ITC and therefore they don't have to come into the ITC net.
They can be outside the ITC net and pay 5% and the consumer also pays 5% with an inverse bracket and both are happy. It's a win-win situation, it appears so. But on the face of it, while it appears so, there are inbuilt issues.
There is an issue of standard costs and standard taxes which are there. For instance, even a small entrepreneur will be having several equipment on which he may have paid 18% GST and those taxes will get straddled in between and he will have to pass it on as a cost to the end consumer. So while the ultimate benefit is there of 5% lower taxes and less complexity in terms of ITC, there is an issue which is there which is the embedded taxes which are there.
Same thing which is happening even in the insurance industry where 5% where the rate has now become nil as far as insurance on health and life insurance for individuals concerned. There also the issue of straddled taxes or embedded taxes is going to be an issue. But the government is assuring that whatever possible can be done.
We have told industry that they should try to squeeze in the cost and make sure that the benefit is passed on to the consumer. The third one of course in ITC is the transitional issue. So apart from these things there are transitional issues for a few days or a few months I would say.
So that's because a lot of accumulations will happen post 2022 September that is today onwards because the output has become nil when that will be a challenge when they have to reverse the ITCs. There will be a trigger of ITC shifts also because there'll be accumulation of ITC on the input side. So these are some challenges which the industry is facing post 22nd September.
And these three buckets are all being addressed to some extent by the government and we can see how the government can take steps to move further and ease the burden for the industry.
Govindraj Ethiraj: And you're saying that therefore people down the supply chain who've let's say paid higher input tax credit will not have to eat the difference right? I mean they will get compensated in some way?
S Ramesh: Yeah the embedded taxes which are there accumulated taxes on ITC will continue to be availed by the businesses. So if there is accumulation of ITC for the previous higher rate whatever goods they have stocked that ITC will not lapse. It will continue to be used for a longer period.
Only thing there'll be greater accumulation of ITC. It's not going to be a burden on the industry as such.
Govindraj Ethiraj: Okay and you were coming to anti-profiteering.
S Ramesh: Anti-profiteering is one issue which the government has handled very very tactfully as far as this GST 2.0 is concerned. They have said from day one that anti-profiting measures are there in the law book. But we believe in the businesses.
We believe in the trade industry. We make sure that businesses will transmit the rate cuts to the consumer. They have all confidence that businesses will pass it on.
They've also made sure that the entire paraphernalia is actually actively working in the government tax authorities. They're also monitoring the issue very closely. But at the same time they don't want to give an impression that it's going to be a punitive matter.
So they have actually not revived the so-called sunset clause which is there in the anti-profiteering measure. They have actually gone very very clearly and they have said that that is there for time being. There is a sunset clause.
We don't intend to open it up right now because we are confident that the consumers will get the benefit. Businesses are going to transmit it and by virtue of various measures which the government has announced like added publicity through social media and through the online stores and actual physical stores, they are sure that customers will actually benefit. In fact, the Prime Minister in his address yesterday clearly said that he has the principle of Nagarik Deho Bawa.
He says Nagarik is God. So he says that consumers should get the benefit of this rate cut and we find that more and more corporate filings and media reports all substantiate the entire focus that yes, the rate cut transmission will happen in a proper way and business and industry are very well geared up to make sure that the rate cut transmission happens down the line. So without the need for an anti-profiting authority.
Govindraj Ethiraj: Right, so you're saying that businesses should not fear the heavy hand of government here. I mean if for example there's some delay in transmitting the rates or maybe input costs have gone up and they want to adjust it a little bit which they tend to do.
S Ramesh: Yeah, the government is very clear that as far as the tax is concerned whatever taxes are there they need to be passed on. They don't have any suggestion that those taxes cannot be passed on. The rate cut has to be passed on but the government is keen to ensure that once this is done by the industry then they look at other issues which they have to face.
So the government is proactively looking at all these issues and I'm sure that whatever issues have been flagged by the industry, the government will look at it as the days go by. So it's very clear that the government is proactively approaching the whole issue in a trust-based manner. Given this entire context of the ITC and the inverted duty structure, it's not as though India alone has been actually suffering this.
Globally there are several mechanisms which are in place to ensure that businesses are not actually suffering because of any inverted duty structure. First of course is to make sure inverted duty structure does not actually happen. The second is of course even if there is an inverted duty structure issue, there is a mismatch, refund should come very seamlessly.
In fact in the UK and EU there are seamless refunds in every return cycle and the monthly cycle itself. The moment you file the monthly return you get the entire refund of the entire inverted duty structure. That transparency and that higher frequency of refund is something which needs to be actually imbibed by India going forward.
I'm sure it's not possible immediately but going forward it's the ideal situation where these things get resolved and tax neutrality is established in a big way.
Govindraj Ethiraj: Mr. Ramesh, we've run out of time. Thank you so much for joining me and I'm going to come back to you in a week or two in any case to pick up the threads.
S Ramesh: I will be happy to do so. Thank you.
Is your food really organic?
Well, consumers world over, including India, have increasingly shifted towards organic foods.
There are special shelves for organic foods in supermarkets and an increasing number of foods, including those traditionally available right here in India, now come with an organic stamp. So much so that the amount of organic food sold or branded as organic is almost twice that of what is produced, Dr. Nikhil Verma, lead consultant with blockchain company Algorand, told me. I began by asking him what blockchain was doing in the context of food systems and how it could change the way customers trusted what they actually bought.
INTERVIEW TRANSCRIPT
Nikhil Varma: So, as I mentioned in the last time we spoke, the DPDP Act is not a policy problem. In the context of supply chain, I kind of call it the PTA problem, which is essentially the problem of proof, transparency, and automation. What has happened in supply chains as supply chains have evolved into global supply chains, one of the problems that we see on a regular basis is that we have companies, this lack of trust between entities and supply chains, the upstream does not pass on the right kind of information to downstream because their upstream would be exposed.
And this creates a logistical nightmare. Logistics, not in the terms of transporting things, but logistics in terms of operations, which is provenance and compliance becomes very difficult. And because provenance and compliance becomes very difficult, that opens up the supply chain to counterfeiting, grey markets, any kind of dispute is very difficult to resolve.
There is fragmented automation, all these kinds of problems, even if supply chain is supposed to be something which should be well oiled, because it kind of drives economies, this is what gives companies competitive edges. It doesn't work the way it's supposed to work.
Govindraj Ethiraj: And it's interesting you say that now, because in a world where we are seeing such high intensity tariff wars being fought, I mean, mostly one way, but nevertheless, supply chains are what could have given you more competitive advantage. Because if you had the ability to move things around, it's one.
Nikhil Varma: Absolutely. It's just the lack of your two-factor upstream, if I may use that word, information that we don't have. And not that you want to bypass people who are in your upstream, it's just about trying to reconfigure the supply chain, because in many ways, a supply chain is supposed to be very transparent.
With a lot of effort, companies have been able to make it translucent. In most cases, it's opaque.
Govindraj Ethiraj: And what is a good example that jumps out when we talk about supply chains and the challenges of the kind you pointed out just now?
Nikhil Varma: Just focus on one supply chain, which is the food supply chain. And as per data, most of us are becoming more and more health aware these days. The amount of organic food that is sold in the market is actually more than two times, two to three times the amount of organic food that's produced.
And the whole organic certification is a sham because some places say, you have to have 30% organic content only to be able to get the organic certification. Some people, some places ask for 80%. So this simple supply chain, which could be very well done with just some kind of proofs and transparency and automated rules while maintaining privacy of the upstream is now broken.
And it's very difficult to fix.
Govindraj Ethiraj: And tell us about how blockchain could create that sense of trust, particularly right down to the consumer.
Nikhil Varma: So more than trust is the carrier of trust. That's how I see it, right? I mean, trust has to be somehow carried over from one place to the other and there should be some kind of a mechanism for any kind of counterfeiting or grey market not being able to enter into the supply chain.
This is the key thing here, right? So essentially the building block of any blockchain application and supply chain is the tokenization aspect. I have time and again mentioned that tokenization is not just a code based process.
It is actually a legal process. It requires you to have different entities working in cohesion and independent entities working in cohesion to be able to verify and validate. Now, these entities might be companies.
These entities could be IoT devices. Essentially, if I suppose, I'm doing organic farming of chillies in Andhra Pradesh, and I have to maintain a certain organic level of the soil, how do I make sure that I am able to transfer that information over? I could have an IoT device, which is very low cost by the way.
This is not the kind of infrastructure overall that we are suggesting. But if you could have IoT devices put on the soil, this IoT device could actually capture that information on a real-time basis. Write a hash of that information in the blockchain.
That blockchain, the hash information could now be the proof that could carry over from the upstream all the way up to downstream. And you could have multiple people who could verify that this information is correct. Essentially, independent people verifying this.
So that would not expose the PIA of the farmers. The farmers don't have to put in their pictures and say, hey, you know what? I have organic farming.
So that kind of clears us up from the DPDP Act while being able to transfer that information all the way downstream.
Govindraj Ethiraj: And are there any good examples of where this is being done already in the food ecosystem that you've talked about?
Nikhil Varma: So there is one company in our ecosystem called Sow and Reap. However, they have not done the food traceability, but they have done the carbon traceability. So what they do is for rice farming, they've done an amazing thing where the amount of water is contrary to what we think or what we always visualise when we see rice paddy fields, we kind of see a lot of water in there.
But what we've seen over the years is that the amount of water that is used is actually overused. And that reduces the fertility of the soil over a period of time. And also kind of has an impact on the methane gas emission and the carbon footprint and so on and so forth.
So there is a methodology which has been defined by the Gold Standard and where both of them have some kind of methodologies. And the methodology is to be able to bring in a certain amount of water only when it is actually required. And the novelty in this process that Sow and Reap has done is that they have been able to capture the amount of water on the field without an IoT device.
There's just a simple tube. They send out people who take pictures, and their apps are geo-locked. So essentially you know that this particular land is the GPS coordinates are kind of locked in.
And all this information is then kind of stored. Currently they're storing it in a database. Very soon they will be actually hashing it and putting it in a blockchain-based system.
Now that gives you the whole genesis of the carbon credit that they are going to be claiming. In fact, they are the first in the world who got pharma credits. And you know, very happily their credits are now being tokenised on Algorand blockchain.
And then the genesis of the credit would eventually have the state proofs, all the proofs that we need to put in with the trusted tokens in the blockchain. So essentially when somebody is going to buy that carbon credit as you and I, you will be able to see whether this particular carbon credit does not have any kind of subjectivity but has data proof. Now the same process Sow and Reap has had is now being used by a few other players who are kind of exploring this in our ecosystem with food processing units.
So there is a company based out of Bangalore which is actually doing an initial development along with the support of the Algorand team to be able to bring in their Web2 system which could not carry trust without them being the trust carriers. And it's not very scalable because now their branding has to be the carrier of the trust, but it's still exposed PII information. Now they are trying to implement all this thing in Algorand blockchain to be able to help carry the trust.
This company is called Scallions and we are helping them kind of migrate their Web2 solution to a Web3 solution currently.
Govindraj Ethiraj: Right, Nikhil, we've run out of time today. Thank you so much for joining me.
Nikhil Varma: Sure, thank you, Govind. Thank you very much.
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And stay tuned every Monday for insights on how blockchain can transform businesses as we count down to the third Algorand India Summit 2025 to be held on December 6th and 7th at the ITC Gardenia in Bangalore and a link to that event is in the description.
IT stocks brace for a hit
Talks of IT companies could be hit following U.S. President Donald Trump's higher $100,000 fee for new H-1B visas as a one-time payment, but IT stocks have been under pressure for some time.
Thus far in calendar year 25, most IT stocks have actually underperformed. The nifty IT index has fallen about 16% as compared to a rise of about 7.1% in the nifty 50, according to business standard quoting ACE equity data. I reached out to Sandip Agarwal, fund manager at Sowilo Investment Managers, and I began by asking him how he was reading the impact of these H-1B visa fees on Indian IT companies now and in future.
INTERVIEW TRANSCRIPT
Sandip Agarwal: You know, let me give you some data first, so that you know, you get the perspective, right? So, today in the world, if you see the global outsourcing which happens, we are around 80-83% of that already. This is when you include BPO also.
In BPO, we compete with Mexico and a few other countries. So, if you exclude BPO from the numerator and denominator, then probably our market share is almost 95-96% of the global sourcing market. So, which means that, there is virtually no competition at all in this business.
And the reason is that, the second-best country and the third-best country which can provide IT services, their prices are more than what the clients are paying us today for this work. So, no way that competition can come. So, let me clear this up here that the same way like what China has on rare earth metal, it is called the manufacturing factory of the world and all that.
Same way, IT software services, there is no alternative, honestly, and it can't be built overnight. It will take a long, long time even if someone wants and not at this price for sure. So, maybe someone can build 30% cheaper than the US, that is the max, but we are much, much cheaper.
So, from that perspective, people will have to find out ways both the US clients and Indian companies to do that. In my view, most rational thinking will be that they will not apply for H1Bs in future and they will ask the client only to apply if they want. So, I come from this industry.
I have run a tech company myself. So, I can tell you that after COVID, clients have understood largely that all of this work could be done comfortably offshore. There is virtually no need for anyone to be here, but when you are paying $10, $20, $30, $50 million, then what happens?
You start thinking that I want at least one or two people in front of me whom I am paying so much money for. So, that aspiration and that kind of thought process used to lead to 15-20% kind of people being onsite pre-COVID, pre-2014. And in 2014, when Trump came for the first time, we brought in some indirect, direct regulation.
Govindraj Ethiraj: You mean 2016
Sandip Agarwal: Yeah, 2016. So, that time, if you see after that, most of the tech companies already reduced H1Bs substantially. So, I think we are now down more than 60-70% on the H1B numbers.
So, whatever this noise is, right now, none of the Indian IT companies are using a big number on the H1B. Last year, the last number, which is around 10,000 out of the total number issued. So, most of the big users are the big techs like Amazon and all.
So, I think both IT services companies, the clients will find their ways out of this and probably it will be easier for them to convince clients to reduce further H1B and clients will now be more than willing to do it because it serves both the purpose, it pleases President Trump and it also, you know, reduces operational complexities for them. From Indian companies' perspective, I just want to clear the air. People think that, you know, we made a lot of money on the site.
Actually, it is the opposite. All the money is made here because clients pay three times the billing rate, $87-$90 per hour, but the costs are much more if you include the cost of visa, the maintenance of the legal department, all those. So, Indian companies will be also happy if it is offshored fully because the profit margins will go up substantially from here.
The only challenge is that whatever amount is further offshored, because the billing rate is 90 versus 30 in India, 30-35 maybe now, so then, you know, your revenue growth which is right now 3-4-5% will look like 0% for the next two or three years. So, that is the only downside. There is no risk on the margin to be honest.
So, I think that is the clear impact which you will see. I don't see, you know, impact on profit in a longer term, shorter term. Yes, there could be some execution challenges, some delays in deals which were already in the pipeline and all those things will happen.
But if you see more than one year, I think margins will not be at risk. Profits may not be at a risk. What will be at risk is revenue growth will look further doomed for the next 2-3 years till it comes in basically.
Govindraj Ethiraj: Right. So, you are saying that basically, I mean, the IT industry has been facing challenges or headwinds in any case and that I guess will continue for the foreseeable future. But you are saying that there is also some impact.
Now, I was looking at the table, for example, only TCS figures in the top 10 with about 10,000 visas right now and all the other companies are, you know, Amazon, Meta, Google and so on. So, if it's only TCS with 10,000, then why is it that the entire IT industry looks like it's under threat? I'm talking about IT services and listed companies and so on.
Sandip Agarwal: So, there is some data which needs to be seen in perspective. So, you have to see how many there are for each company currently. So, for example, last year Infosys was 8,000, TCS was 5,000 odd numbers and this year Infosys is 2,000 and TCS is about 10,000 numbers.
So, you know, it keeps changing because the visa is valid for 3 years plus 3 years. Now, if you see the Commerce Secretary when he spoke, when they announced this, he said it is annually $1 lakh. So, all the pressure problems which came and, you know, the instant reaction that margins are an immediate threat and in fact, my view is also the same because the Commerce Secretary is saying this and if you do the math, you will feel like that number.
So, I think 3 years, what is the current H1B users for each of these companies in the US that needs to be seen. That also, I honestly don't think is a big number. It will be very, maybe for Infosys, maybe, you know, 12,000, 13,000 or 15,000, TCS maybe 18,000, 20,000.
So, that is not a big number. Secondly, remember that all these things can be very easily handled from Canada because Canada is like, you know, day morning people can go, they can do whatever is required and come back by evening. So, all those things are also possible.
So, I don't see any challenge but if you ask for a solution in the next 7 days, 15 days, 30 days, there is no solution. People will have to understand first. Let the law, what is coming, whatever is the circular that comes on 25th or 27th, whenever it comes, we read, we understand, more details come out of it and then only solutions could be arrived at.
But business impact, execution impact, so there are 3 impacts, right? Operational execution impact, zero. I don't think there is any impact of it.
Very, very miniscule percent and if, let's say, you have to keep, give one guy against 1,000 people. So, Infosys, let's say, has to hire 200 people in total in HRNB. It is a cost like any other operational cost.
I think there will be more savings from the legal department which is running that versus that. So, I don't see that as an operational challenge. I consider it negligible.
Cost challenges in the near term could be here and there. Margin challenge could be here and there because a lot of deals which are in pipeline, they can go off and all those things can happen. The plan will also try to put some pressure on me.
Indian companies will also try to show negotiation delays and all that. So, there will be some challenges later, but long term, I don't see any impact. Honestly, I think it will be more beneficial on the margins, definitely.
Govindraj Ethiraj: Right. Sandeep, we've run out of time. Thank you so much for joining me and I do hope to revisit this in a couple of weeks to see where we stand at that point.
Sandip Agarwal: Thank you. Thank you so much.
