During a conference call in September, Hexaware, an IT, BPO, and consulting services company, expressed concerns about potential challenges in the supply of talent in the US. While demand remained robust, the company faced difficulties executing projects due to talent shortages in the US. Persistent Systems echoed similar sentiments, emphasizing challenges in meeting demand due to constraints in accessing the right talent at the right time.

This issue is not unique to Hexaware and Persistent; it reflects a broader concern within India’s IT services industry. The industry has primarily focused on meeting the growing demand for digital services but has not adequately addressed the insufficient pool of digital talent available to fulfill this demand.

The September quarter marked the first instance when companies openly acknowledged that supply-side bottlenecks were affecting their performance. Hexaware and Persistent reported slower sequential revenue growth, Infosys faced margin challenges due to increased subcontracting costs and onsite localization, and Cognizant experienced heightened attrition, highlighting the severe talent crunch impacting Indian IT.

While the perceived threat to Indian IT from the Trump administration’s protectionist measures did not materialize through legislative changes like H1B reforms or increased minimum wages, administrative restrictions tightened. Visa rejection rates surged, premium processing was halted, and the duration of H1-B visas was arbitrarily reduced.

Immigration challenges are exacerbating the talent shortage in an already constrained market, potentially leading to higher wages, not only for temporary visa holders but also for local workers. This, in turn, is expected to exert pressure on profit margins and diminish companies’ revenues as they struggle to meet the escalating demand.

Looking ahead, there is growing speculation about a comprehensive overhaul of the H1-B visa regime. Changes may include basing visa allotments on salary and skill levels rather than the current lottery system, altering the definition of specialty occupation. In the face of an increasingly restrictive visa regime, the risk of a talent crunch slowing down growth is becoming a tangible concern that IT companies will grapple with in the upcoming year.