BENGALURU: States in the US are looking to roll out the red carpet for Indian IT services companies, with Indiana offering as much as $31 million in incentives to Infosys as it looks to drum up jobs in the sector.
The state plans to woo more Indian IT companies, which need to boost local hires given the political sensitivity over H-1B visas and immigration under President Donald Trump. The incentives being dangled — mostly in the form of tax abatements and one-time grants — are financed by development funds created by most US states.
Indiana is offering Infosys one of the largest incentive packages it has ever handed out, more than covering the company’s cost of setting up its centre. Infosys said it will spend about $8.7 million to lease and equip its office space in the state. Indiana’s incentives are in the form of conditional tax grants and training grants.
“States, cities and counties can all offer incentives. The idea is to pick places that offer incentives and has a local college network that can provide talent that is cost-effective and can be trained. We aren’t going to be hiring from Stanford or MIT,” an IT executive told ET.
The Infosys deal took a few months to hammer out, Indiana governor Eric Holcomb said in a statement. Holcomb is also planning a trip to India to sell his state to other IT companies, he said. The Indiana Economic Development Corporation plans to offer up to $15,250 in conditional tax credits for each job the company creates and up to $500,000 in training grants.
If the company hires all planned 2,000 workers, the maximum total incentives from the state would be $31million. A second IT executive said companies were talking to states where they already have an outpost such as Texas to negotiate incentives to expand there. Companies like L&T Infotech have said they would look to boost their headcount in the tri-state area, which includes New York, New Jersey and Connecticut.
“Midwest states are generally more aggressive in holding out incentives because they haven’t seen the kind of job creation that states like New York and California have,” said Ganesh Natarajan, chairman of skill development platform 5F World.
“So this is typically a negotiation — if you can say you will bring 1,000 jobs to that city, then you can have a good standing,” said Natarajan, the former CEO of Zensar Technologies.
Raman Roy, chairman of industry body Nasscom, said the incentives had nothing to do with the H-1B visas and were related to the jobs that the IT industry creates.
“There was a study that shows that for every one job that is directly created, there are five or six indirect jobs,” he said. “States understand that this has a catalytic effect. But companies won’t set up in states just for incentives, there has to be a business case.” To be sure, the incentives will not mitigate all of the increased cost of hiring onsite. “The cost structure onsite is higher. The incentives are a small drop in the bucket because just the wages, even for the freshers, will distort the margin,” an analyst with a Mumbai-based brokerage told ET.
Receiving incentives to set up centres in the US is not new. Cognizant also got these in 2014 when it expanded its centre in Tampa, Florida. But incentives will become increasingly important. Unlike India, where IT companies control where they deploy employees, in the US, they will have to build centres across the country as they look at attracting Americans to work with them.
“One of the key reasons we were not able to attract many local hires is location certainty. For example, we expect our employees who come on visas to move from one location to another as and when projects get completed, which does not give location certainty to a local hire,” MD Ranganath, chief financial officer at Infosys, told analysts in April. “So there is a local reluctance on their part to join us because they want to be at a particular location.”
Cognizant president Rajeev Mehta told ET that the company would count on its roots in local communities like Tampa to attract an increasing number of American workers.