H-1B Restrictions as Trade Weapon? India Faces Dual Threat to Its IT Exports and Currency

TradingKey - Since around 70% of H-1B visa beneficiaries are of Indian origin, the Trump administration’s new policy to raise H-1B application fees to $100,000 is widely seen as a direct blow to India’s globally renowned IT services industry — potentially an extension of escalating tensions in the ongoing U.S.-India trade and technology dispute.

Last Friday, President Donald Trump signed an executive order that includes hiking H-1B visa costs to $100,000. The move adds uncertainty to the hiring plans of major U.S. tech firms and casts a shadow over the decades-old pipeline of tech talent flowing from India to America.

On Monday, September 22, India’s IT sector index plunged 3%, its largest single-day drop in five months, wiping out $10 billion in market value. Among the hardest hit were outsourcing giants Infosys, Tata Consultancy Services (TCS), and Tech Mahindra.

The IT sector has been the worst-performing segment in India this year, down 18%, while the broader Nifty 50 index has surged nearly 50% over the same period.

In the fiscal year ending September 2023, workers of Indian origin accounted for 72.3% of all H-1B visa recipients, most of whom were employed through Indian IT firms.

JPMorgan estimates that the soaring cost of H-1B hires will push U.S. employers to:

• Increase the ratio of offshore outsourcing vs. onshore work
• Replace H-1B workers with local staff for onshore roles

ICICI Direct noted that amid already challenging conditions, profit margins face near-term pressure. Assuming Indian IT firms continue using the H-1B program, the new rule could reduce their profit margins by 1 percentage point and cut earnings by approximately 6%.

Jefferies estimates the labor supply crunch could drag profits at Indian software outsourcing firms by 4% to 13%.

With the U.S. and India still negotiating over tariff and trade issues, Emkay analysts said:

“Services exports have finally been dragged into the ongoing global trade and tech war.”

Former CEO of Tech Mahindra stated that Trump’s move is essentially a geopolitical power play, and in the short term, India’s IT export industry will undoubtedly suffer.

Remittance Risk Adds Pressure on the Rupee

High-skilled Indian professionals working in the U.S. send substantial remittances back home — a vital source of foreign income. These inflows account for about 28% of all personal remittances to India, making them a key support for the Indian rupee.

Analysts warn that as the number of Indian H-1B holders declines in the coming years, remittance flows could weaken, further pressuring the currency.

Year-to-date, USD/INR has risen 2.90%, trading at 88.2780. While many Asian currencies have strengthened due to Fed rate cuts, the rupee has emerged as one of Asia’s weakest performers.

MUFG said Trump’s new visa measures reinforce its outlook: the rupee will underperform both regional Asian currencies and major G10 counterparts.