Archive · 4 Nov 2025
Raghuram Rajan Warns US HIRE Act Poses Greater Threat to India Than H-1B Fees
Imagine India has many people who help American companies with jobs, like fixing computers or answering phones, from India.
Usually, this is cheaper for American companies.
But now, the US is thinking about a new rule called the HIRE Act.
This rule is like a big tax that American companies would have to pay if they hire people or services from other countries like India.
This tax is a bigger worry for India than a recent small increase in fees for some work visas.
The new tax could make it much more expensive for American companies to use Indian workers, which might cause them to stop or do less work with India.
India's government is concerned this could hurt its businesses that provide services to the US and wants the US to lower these potential taxes.
Former RBI Governor Raghuram Rajan identifies the US HIRE Act as a more significant threat to India than increased H-1B visa fees.
The HIRE Act proposes a 25% excise tax on payments US companies make for outsourced services from foreign countries.
This legislation aims to discourage outsourcing and redirect funds towards US workforce development programs.
Sectors like IT services, BPO, and consulting, where the US is a major export market for India, are expected to be heavily impacted.
Rajan also noted that existing US tariffs on goods have already impacted sectors like textiles, and India seeks lower tariff levels in ongoing negotiations.
- Who
- Raghuram Rajan, Former RBI Governor
- What
- Raghuram Rajan stated the proposed US HIRE Act, which aims to impose tariffs on outsourced services, is a greater threat to India than H-1B visa fee hikes.
- When
- The HIRE Act is currently being debated in the US Congress; if passed before December 31, 2025, the tax could apply to overseas payments from January 1, 2026.
- Where
- United States Congress is debating the HIRE Act, affecting US companies and impacting India's service exports.
- Why
- The HIRE Act proposes a 25% excise tax on payments made by American companies to foreign individuals or entities for outsourced services, aiming to discourage outsourcing and support the US workforce.
HIRE Act vs. H-1B Fee Hike
Potential Impact on Indian Companies
Primary Concern
HIRE Act vs. H-1B Fee Hike
Raghuram Rajan argues the HIRE Act's proposed tariffs on outsourced services pose a greater risk to India's service exports and global talent flow.
Potential Impact on Indian Companies
While recent H-1B visa fee hikes are a concern, Rajan suggests their impact is less severe as companies can adapt by hiring more from local STEM graduates or utilizing virtual networks.
Scope of Legislation
HIRE Act vs. H-1B Fee Hike
The HIRE Act targets a broad range of outsourced services, including IT, BPO, and consulting, potentially affecting a significant portion of India's service export revenue.
Potential Impact on Indian Companies
The H-1B visa changes primarily affect the movement of personnel, and Rajan suggests that adjustments in hiring strategies can mitigate some of the impact.
Strategic Implications
HIRE Act vs. H-1B Fee Hike
Tariffs on services could permanently disrupt established supply chains and lead to a loss of market share for Indian companies.
Potential Impact on Indian Companies
Changes related to H-1B visas might lead to increased hiring of Indian students in the US or a shift towards virtual operations, potentially accelerating the growth of India-based global firm operations.
- Proposed Legislation
- US Help In-sourcing and Repatriating Employment (HIRE) Act
- Proposed Tax on Outsourced Services
- 25% excise tax on payments to foreign individuals/entities
- Deductions Affected
- Companies can no longer claim deductions for outsourced payment expenses
- Revenue Allocation
- Reskilling, apprenticeships, and workforce development for US citizens
- Affected Sectors
- IT services, BPO, consulting, GCCs, freelance services
- Potential Implementation Date
- Overseas payments from January 1, 2026, if passed before December 31, 2025
- Key Exponent
- Raghuram Rajan, Former RBI Governor
Sources
'Anything between 10–20%...': Raghuram Rajan on what would be ideal US tariffs for India
India’s exports to US witness $3.3 billion decline in May-Sept, sharpest short-term collapse in years: GTRI report
India's exports to US saw sharp fall across sectors faced with Trump tariffs: Report
Trade shock: US tariffs hit India’s exports hard; smartphones, pharma, gems lead 37% fall
