The latest changes to the H-1B visa program, particularly the increase in fees, are causing Indian IT firms to rethink their strategies, leading to increased subcontracting costs. While the long-term effects are still unfolding, the immediate impact is being felt across the industry, especially by companies like Infosys.

H-1B Visa Restrictions and Rising Costs

The H-1B visa has long been a crucial pathway for Indian IT professionals seeking opportunities in the United States. However, recent policy changes, including significant fee hikes, are creating new challenges. On September 19, 2025, the Trump administration signed an executive order that increased the fee for new H-1B applications to $100,000, a steep rise from the previous $1,500. This change, intended to protect American workers, has far-reaching implications for both US and Indian technology sectors.

The increased costs associated with H-1B visas are prompting Indian IT firms to explore alternative staffing models. Companies are increasingly relying on subcontracting to meet project demands, especially for specialized skills that may not be readily available internally. Subcontracting involves hiring third-party agencies or consultants to fulfill specific project requirements.

Impact on Indian IT Firms

The rise in subcontracting costs is a growing concern for Indian IT firms. Data from staffing firm Xpheno indicates that the subcontracting costs for the top four Indian IT companies—Tata Consultancy Services (TCS), Infosys, Wipro, and HCLTech—rose by nearly 60% in the two years leading up to March 2023. This surge is attributed to increased demand for digital services and higher staff attrition rates following the pandemic.

Infosys, in particular, has seen its costs for technical subcontractors nearly double, reaching Rs 14,062 crore. In the June quarter of 2022, Infosys' subcontracting costs increased by 10.6% sequentially, leading to a 150-basis point decline in the company's Q1 margin. While Infosys CEO Salil Parekh has stated that the H-1B fee hike will not significantly impact the company due to its localized US workforce, the increased reliance on subcontracting suggests otherwise.

Driving Factors

Several factors contribute to the increased reliance on subcontracting:

• Demand for Specialized Skills: IT projects often require specific skill sets that may not be available within the company. Subcontracting allows firms to quickly access specialized expertise.
• Attrition Rates: High attrition rates in the IT sector necessitate hiring subcontractors to fill immediate staffing needs and ensure project delivery.
• Flexibility: Subcontracting provides flexibility in managing workforce size and skills, especially for short-term projects.

Strategies for Mitigation

Indian IT firms are adopting various strategies to mitigate the impact of rising H-1B costs and increased subcontracting expenses:

• Increased Offshoring: Companies are shifting operations and projects to India and other cost-effective locations to reduce the need for H-1B visas.
• Local Hiring: Hiring local talent in the US reduces dependence on H-1B visas and associated costs.
• Nearshoring: Establishing operations in countries like Canada and Mexico allows companies to serve US clients while avoiding H-1B restrictions.
• Automation and AI: Implementing automation and AI technologies to improve efficiency and reduce the need for human resources.

Potential Long-Term Effects

The long-term effects of these trends could reshape the IT landscape. While the rise in subcontracting costs presents immediate challenges, it also spurs innovation and efficiency. Indian IT firms are focusing on building in-house capabilities and adopting automation technologies to reduce their reliance on external vendors.

Moreover, the shift towards remote work, accelerated by the pandemic, allows companies to tap into talent pools globally, potentially diminishing the impact of H-1B restrictions. However, this shift may also amplify the demand for remote tech workers from India and elsewhere.

The changes in H-1B visa policies and the resulting increase in subcontracting costs are creating both challenges and opportunities for Indian IT firms. While companies like Infosys may face immediate financial pressures, the industry is adapting through strategic adjustments in staffing models, increased offshoring, and greater investment in technology.