India may benefit from H-1B barriers: JPMorgan economist explains why  

Sajjid Chinoy, Chief India Economist and Head of Asia Economics at JPMorgan, has said that restrictions on H-1B visas may ultimately benefit India by accelerating offshoring to the country, even if the near-term impact is negative.

"We had a precedent in the pandemic before, where you had Indian IT or multinational firms increasingly offshore. So even though efforts by the US may push up the relative cost of H1B workers and that may induce some firms to hire US nationals, it will lead to a broader push towards greater offshoring, which has benefited India in the last few years in the form of strong service exports," Chinoy told CNBC International.

US President Donald Trump last week ordered a steep hike in the H-1B visa fee to $100,000. The White House later clarified that this was a one-time fee applicable only to new petitions and not to renewals or existing visa holders. Nearly 70 per cent of H-1B beneficiaries are Indians.

Offshoring and Domestic Supports

Chinoy said India's services sector had already gained from global offshoring, citing pandemic-era trends and multinational activity. "JP Morgan is a classic case in point where you've got these large global capability centers, back offices doing increasingly high-end work, research, legal, accounting, technology, engineering, cyber security, risk management, card structuring," he said.

At the same time, Chinoy acknowledged external headwinds from tariffs and trade uncertainty. But he noted that India had several domestic supports that could partially offset export challenges. "We've had record low inflation this year. The fiscal year is going to end with just 2.5% inflation. We've had a monetary easing cycle earlier that's playing through the system. The GST tax cuts kick in from today. We had direct tax cuts earlier in the year and a very strong monsoon. So the hope is that all of these factors will reinforce some kind of consumption revival in the coming months. And that should at least partially offset some of the headwinds from the tariffs from the US," he said.

Trade Deal Urgency

On the outlook for India's growth, Chinoy said much depended on the duration of US tariffs and whether a trade deal could be reached quickly. "It'll depend very much on how long the tariffs kick in," the economist said. "There has been some frontloading of exports to the US. So if a trade deal is struck in the next few weeks or the next couple of months, India could absorb that impact because there has been some frontloading." 

"These are, however, very labour-intensive sectors - gems and jewelry, leather, textiles, footwear, shrimps and so what you don't want is these tariff headwinds to persist for much longer because then you worry about nonlinearities kicking in. You worry about job losses and the knock-on effect on consumption," he said.

If the tariff headwinds continue for several quarters, the economist warned, then that has the prospect of not just impacting employment consumption but also animal spirits and investment more generally.

Chinoy said he was hopeful of a trade deal with the US. "I'm very much the old school camp that trade is all about, you know, a positive sum game. This is not a zero-sum game. There are wins to be had on both sides," he said, adding that India is a large and growing market that makes it attractive for US firms.

Diversification Beyond the US

Chinoy underlined the need to diversify India's trade links. "Having said that, there's clearly an urgency to diversify trade. We've already had a trade deal with the UK. There are negotiations on with the EU and the hope on shore is we'll conclude a deal with the EU sometime before the end of this year. So India is trying to diversify its exports even as it negotiates with the US," he said.

On the impact of the H-1B announcement on negotiations, he said: "Well, it remains to be seen how important the H1B visa is in the trade negotiations. But I think if you step back, the initial impact seems negative. Of course, the clarifications by the White House on the weekend clearly helped. This will only act prospectively, not retrospectively. This is a one-time fee, not an annual fee. So that at the margin makes it a little bit more palatable."