Former Reserve Bank of India (RBI) Governor Raghuram Rajan believes the proposed US Halting International Relocation of Employment (HIRE) Act is a greater concern for India than the $100,000 fee hike to the H-1B visa programme.
In an interview with DeKoder, Rajan said the HIRE Act could impose tariffs on outsourced services, not just goods, which would directly affect India’s IT and services exports. “One of our biggest concerns is not so much the goods tariffs but whether they try and find ways of imposing tariffs on services. This is a threat,” he said.
Rajan said the Congress was debating the HIRE Act that aims to impose tariffs on outsourced services. “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,” he said.
What is the US HIRE Act?
The US HIRE Act aims to boost job creation in the US by discouraging companies from outsourcing work to other countries. It introduces a 25 per cent outsourcing tax on payments made to foreign workers for services used within the US, making it costlier for firms to send jobs abroad.
Additionally, businesses will no longer be allowed to claim these outsourcing payments as tax-deductible expenses. The revenue generated from this tax will be directed into a new Domestic Workforce Fund, which will support training programs and apprenticeships to help US workers gain the skills needed for future employment opportunities.
Rajan on H-1B fee hike
On the H-1B issue, he pointed out that the need for these visas has already been declining because many services can now be delivered digitally. Indian companies, he said, are increasingly doing backend work from India while hiring locally in the US for customer-facing roles.
Rajan believes existing H-1B holders and students with STEM degrees in the US are unlikely to be affected. “Indian companies can still have personnel in the US, they may recruit more from Indian students who study there. But much more can now be done virtually,” he said.
He said these changes could boost India-based operations for global firms. “Companies like Microsoft that hire on an H-1B basis may now hire more people directly in India through their global capability centres,” Rajan noted. “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 said.
‘India must act quickly’
Rajan also warned that India must act quickly to prevent long-term disruption to supply chains due to the current tariffs. “It’s a big issue for labour-intensive sectors like textiles. We don’t want the progress we’ve made in accessing the US market to be permanently set back,” he said.
The US imposed a 50 per cent tariff on Indian imports, including a 25 per cent penalty for buying Russian crude, starting August 27.