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U.S. Visa Fee Hikes Could Hurt IT Spenders

NEW YORK ( TheStreet) -- The U.S. visa fee hikes are likely to affect operating margins for prominent IT firms such as Infosys Technologies (INFY - Get Report) by 150 basis points and could prove unfavorable at a strategic level as well.

On Tuesday, the U.S. House passed a bill to hike the fees from $320 to $2,320 on H-1B visas given for highly skilled professionals and from $320 to $2,570 on L-1 visas for multinational transferees. The revised fees would come into effect Oct. 1 and continue until 2014. The Senate added that the move would largely affect four Indian companies that operate in the U.S. -- Tata Consultancy Services, Infosys, Wipro (WIT - Get Report), and Satyam Computer Services (SAY).

During the past week, the Senate had approved beefing up of border security measures. New York Democrat Charles Schumer added that the bill was targeted toward a select group of companies that exploit U.S. law to import workers from abroad and have more than 50% of their employees on such visas.

The fee hike, which is expected to generate an additional $550 million, has been implemented to accommodate a $600 million border security spending bill, build operating bases, and deploy unmanned surveillance drones to better secure the U.S.-Mexico border.

Som Mittal, President of Indian technology industry trade group National Association of Software and Services Companies (Nasscom) said that following the fee hike, companies may incur an additional $200 million to $250 million in human resources costs annually.

Infosys Chairperson Kris Gopalakrishnan commented that the company would pass the entire uptick to customers over time, terming it an industry-wide issue. However, the immediate impact of the hike will be minimal as most of the current year's visas have already been applied for. He further added that the hike in the near term would imply an additional cost of almost $4 million to $6 million assuming an annual visa filing volume of 2,000-3,000. In the scenario where the cost cannot be passed on to end customers, Infosys could suffer an almost 150 basis point dip in operating margin on the higher end for fiscal year 2011.

For the first quarter ended June 30, Infosys reported a 28.3% operating margin after accounting for $16 million in visa costs. North America accounted for 67.3% of total revenues and Europe contributed 20.3%, while that from the rest of the world was 12.4%.

On the other hand, the American corporate sector had a different view, stating that such a move by the government would reflect discrimination against foreign companies and affect investment relations with India. The U.S. India Business Council (USIBC) has asked Congress to amend these new laws that would harm America's economic interest and dent trade and strategic relationships with India.
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