A cost surge is imminent in the Indian IT sector because of higher US visa fees, increase in visa rejections and declining utilisation due to reducing fungibility vis-à-vis H-1B holders, says Edelweiss
The US immigration draft bill to be introduced in the Senate will, without doubt, be detrimental to the Indian IT business if implemented. However, brokerage firm Edelweiss, in its sector update said that its impact would be more in the long-term rather than short-term and less dilutive than commonly perceived. Though the draft has not been released, a few of its proposals published in media, if implemented, can impact profits and margins of Indian IT players.
The brokerage believes that a cost surge is imminent on account of higher visa fees and increase in visa rejections and declining utilisation due to reducing fungibility vis-à-vis H-1B holders.
According to Edelweiss analysis, these factors along with hiring locals (including sub-contractors) will impact Infosys’, TCS’ and Wipro’s net margins 88 basis points (bps), 148 bps and 73 bps, respectively.
In the worst case scenario, the impact on margins of Indian IT companies will be three-fold. First, visa fees will catapult almost 100% (from around $5,000 to around $10,000). Second, employee fungibility will be reduced due to lower onsite employees (H1-B holders) and companies will have to maintain a bench of local hires, reducing utilisation level. Third will be the higher average cost of local hires vis-à-vis visa holders. The timeline for local hiring is 25% by FY14, 35% by FY15 and 50% by FY16.
Edelweiss analysis of the above three factors indicates that increase in visa fees can inflate
Infosys’, TCS’ and Wipro’s absolute costs by $13 million, $33 million and $11 million, respectively, while the net margin impact would be 60 bps, 101 bps and 73 bps, respectively, on current FY15 estimates.
Similarly, while increase in bench will spike absolute costs by $3 million and $8 million for Infosys and TCS, respectively, on the margin front, the impact will be 14 bps and 24bps, respectively. Third, the higher local hire cost will inflate Infosys’ and TCS’ absolute costs by $3 million and $7 million and margins by 14 bps and 23 bps, respectively. Wipro’s 36% onsite employees are local hires and hence only visa cost will impact its costs and margins, Edelweiss said in its report.
The brokerage believes, incrementally, top tier Indian IT companies will move up the value chain. This will increase the consultancy component which anyway requires higher onsite resource coupled with higher local talent to fill skill set gaps. Hence, the proposed draft will only fast forward the phenomenon rather than introducing it anew. And probably, the impact would have been more gradual had it not been enforced via legislations. Also, it is worth highlighting that Indian companies have been increasingly hiring local talent since the past few years. According to Edelweiss, escalating visa costs and rejection rates, declining utilisation rates along with higher local hiring will dilute net margins of Infosys, TCS and Wipro 88bps, 148bps and 73bps, respectively. But, at the same time, one would have to wait and watch on-the-ground execution of the bill as a severe talent crunch in developed markets may hinder its strict implementation.
While rejecting the exemption claimed by the PIO under Section 8(1)(d), the CIC said if this is the normal tendering process, then the rates in e-tendering can also be disclosed. This is the 80th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application
The Central Information Commission (CIC), while allowing a complaint, directed the Public Information Officer (PIO) of Directorate of Health Services at the Government of National Capital Territory of Delhi (GNCTD) to provide information sought by the applicant. The PIO was also issued a show-cause notice for not furnishing the information within 30 days, as mandated under the Right to Information (RTI) Act.
While giving this judgement on 28 January 2011, Shailesh Gandhi, the then Central Information Commissioner said, “Given the fact that announcing the rates of all tenderers is an intrinsic part of normal tendering process, it cannot be argued that just because of e-tendering the rates cannot be disclosed. The Commission rejects the PIO’s claim of Section 8(1)(d) of the RTI Act.”
New Delhi resident Sidharth Pandey, on 6 August 2010, sought information under the Right to Information (RTI) Act from the Public Information Officer (PIO) of the Directorate of Health Services at the GNCTD. Here is the information he sought and the reply provided by the PIO...
1. Was the tender for purchase of 34 medical items brought out in March 2010?
PIO's Reply: Yes.
2. Reasons for scrapping the first tender. Please provide all relevant copies including file notings showing the reason for scrapping the tender.
PIO's Reply: This was with on instruction of Pr. Secy(H) as opined by the Finance Department. On representation by some firms accordingly it was re-tendered.
3. Any complaints against first round tendering?
PIO's Reply: Same as above.
4. Copies of the complaint against the tendering, subsequent action and file notings relating to this.
PIO's Reply: Same as above
5. Any complaints received against the second round of tendering?
PIO's Reply: Yes
6. Copies of the complaints with file notings of subsequent actions on the complaints.
PIO's Reply: Yes
7. Certified copy of the list of rates approved with details of winner.
PIO's Reply: Copy enclosed.
8. How many companies applied for second tender?
PIO's Reply: The second tender was never rejected
9. Details/reasons why these tenders were rejected.
PIO's Reply: The second tender was never rejected
10. What were L2 and L3 for these products, also give names of companies which made L2 and L3 bids.
PIO's Reply: Cannot provide under sec 8 of RTI act
11. Details of directors applying on behalf of the companies.
PIO's Reply: List enclosed
12. Is an inquiry being conducted regarding tender process?
PIO's Reply: No
13, 14, 15 Has the purchase been stopped, date of stopping and the reason.
PIO's Reply: No (13 and 14)
Not satisfied with the information, Pande then filed his first appeal, in which he stated...
1- Copies of all correspondence and file notings for scrapping First Tender sought in queries 2 and 4 not provided.
2- Copies of complaints received after the First Tender with respect to 34 medical items were not provided as sought in query-3 & 4. The copies of complaints provided are of June 2010 whereas tender happened in March 2010. Hence correct information was not provided.
3- Query-5 and 6: Copies of file notings with respect to complaints are not provided.
4- Query-10: Refusal is wrong because as per Section 10(1) the PIO can provide limited information. This can be done without disclosing the name of the company. By provided this no commercial interest of any company will be harmed.
5- Query-11: Name of the director, contact details and addresses of these companies not been provided.
There was no mention of any order passed by the First Appellate Authority (FAA).
Pande, aggrieved due to incomplete information provided by the PIO and no action by the FAA, then approached the CIC with his second appeal.
During the hearing, Pandey showed the Commission booking receipt and delivery report of his first appeal sent to the FAA. Mr Gandhi, the then CIC, observed that the FAA Dr B Mohanty appeared to be guilty of dereliction of duty since he did not pass any order in the matter. He then directed the FAA to present himself before the CIC with his explanation on 11 March 2011 to show cause why the Commission should not recommend disciplinary action against him for dereliction of duty.
Deemed PIO Dr Praveen Kumar stated that the files relating to the complaints were with Health and Family Welfare Department and hence information relating to queries 2, 3, 4, 5 and 6 were not provided.
The Commission then pointed out that the PIO should have either sought the assistance under Section 5(4) or transferred the application under Section 6(3) of the RTI Act to ensure that the Appellant got the information.
The PIO while refusing information on query10 claimed exemption under Section 8(1)(d) of the RTI Act. He stated that the commercial confidence placed by the L2 and L3 bidders would be violated leading to affecting their competitive position.
Mr Gandhi, the then CIC, asked whether this was the process followed in normal tendering, to which the PIO admitted that the rates of all the tenderers are openly announced when the tenders are open. He, however, claimed that in the instant case since there was e-tendering the rates of L2 and L3 were not known to others.
Given the fact that announcing the rates of all tenderers is an intrinsic part of normal tendering process, Mr Gandhi noted that it cannot be argued that just because of e-tendering the rates cannot be disclosed. The CIC then rejected the PIO's claim for exemption under Section 8(1)(d) of the RTI Act.
While allowing the appeal, the Commission directed the PIO to provide information on query- 11 and 12 to Pandey before 10 February 2011. The CIC also directed Dr Kumar, the deemed PIO to obtain the information on queries 2, 3, 4, 5 and 6 which has not been provided earlier to Pandey after seeking the assistance of other offices/ officers under Section 5(4) of the RTI Act. Dr Kumar after obtaining the information within 15 days from other officers, would provide it to Pandey before 25 February 2011, the Commission said in its order.
The Commission also found the PIO guilty of not furnishing information within the time specified under sub-section (1) of Section 7 by not replying within 30 days. The CIC, then issued a show-cause notice to the deemed PIO Dr Kumar and directed to submit his reasons showing cause why penalty should not be imposed on him as mandated under Section 20(1).
CENTRAL INFORMATION COMMISSION
Decision No. CIC/SG/A/2010/003598/11167
Appeal No. CIC/SG/A/2010/003598
Appellant : Sidharth Pandey,
New Delhi 110048.
Respondent : Dr RN Sharma
Public Information Officer & Dy. Director (Planning)
Directorate of Health Services
Govt. of NCT of Delhi
F - 17, Karkardooma, Delhi
As military contractors fight budget cuts, they get a friendly face on the Senate Armed Services Committee
Last year, we told you about how former Lockheed Martin executive Ann Sauer had been hired to be the top Republican staffer on the Senate Armed Services Committee.
Sauer got $1.6 million from Lockheed, including a buyout, before being hired by Sen. John McCain to come back to Capitol Hill, where she had previously worked as a staffer. Watchdogs cried foul.
With McCain stepping down as ranking member of the committee, Sauer left the job on the Armed Services Committee earlier this year and now works as a federal budget expert for hire.
Her replacement? Another former Hill staffer who went to work with large military contractors — including Lockheed.
John Bonsell, the new staff director for the Republicans on the committee, spent five years as a lobbyist for military contractors such as Boeing, GE Aviation, BAE Systems, and SAIC. He made $276,400 in 2011, his final year as a lobbyist, a disclosure form shows. Bonsell did not respond to our requests for comment.
Bonsell takes the Armed Services Committee job at an especially fraught time for military contractors: the industry has been fighting — so far unsuccessfully — budget cuts that kicked in under sequestration last month.
Before working as a lobbyist, Bonsell had a two-decade career in the Army including a stint as chief of concepts and doctrine on the Army staff at the Pentagon. After that, he became a legislative assistant to Sen. James Inhofe, R-Okla., in 2001.
After five years as a lobbyist, Bonsell rejoined Inhofe’s staff in 2012 as legislative director. Earlier this year, when Inhofe took over from McCain as ranking member on the Armed Services Committee, he hired Bonsell to be staff director.
Asked if Bonsell’s previous role as a lobbyist for industry players presents any conflict, Inhofe spokeswoman Donelle Harder said the senator views that work as a plus.
“Due to his 20 plus years of service in the U.S. Army and his post-retirement career, Sen. Inhofe finds John Bonsell uniquely qualified to understand the perspective of both the government and the private sector as the committee works to address unprecedented challenges with the future of our national defense,” she wrote in an email.
Inhofe has said that his top priority is to avoid military budget cuts.