Former RBI Governor Raghuram Rajan has warned that the proposed US HIRE Act poses a greater threat to India’s economy than recent H-1B visa fee hikes, potentially impacting the crucial IT and services export sectors.
Key Takeaways
- The HIRE Act could impose tariffs on outsourcing services, directly threatening India’s IT industry.
- A proposed 25% outsourcing tax and changes to tax deductions aim to make offshoring expensive.
- Rajan notes H-1B visa demand is declining as more services move online.
Why the HIRE Act Concerns India
Raghuram Rajan stated in an interview with DeKoder that the US may find ways to impose tariffs on services, representing a significant concern for New Delhi. “How that’ll be implemented is anybody’s question, but this creeping of tariffs beyond goods to services to Indian visitors into the US through the H-1B route – these are all concerns,” Rajan explained.
How the HIRE Act Works
The legislation aims to protect American jobs by making outsourcing more expensive through a 25% outsourcing tax on businesses. Additionally, payments to foreign workers for US-based services would no longer be tax-deductible expenses. The generated revenue would fund training programs for American workers.
If implemented, these measures could threaten India’s outsourcing industry and service jobs, which heavily depend on American contracts.
Changing Dynamics of H-1B Visas
Rajan observed that H-1B visa demand has declined as more services are delivered remotely. Indian companies now handle backend work domestically while hiring locally for customer-facing roles in the US. They can also recruit Indian students already studying at American institutions.
“There will be adjustments, and the net effect will be less H-1B immigration, but it doesn’t look as bad as it first seemed. The HIRE Act is much more important for us,” he added.
The warning comes as US President Donald Trump has already imposed tariffs on Indian goods and fees on new H-1B visas, affecting Indian companies and workers.
