While most of the debate in Washington and New Delhi has centered on the $100,000 H-1B visa fee hike, a former Indian central banker has drawn attention to a much larger storm brewing in the background. Former Reserve Bank of India (RBI) Governor Raghuram Rajan has warned that the real threat to India’s economic interests lies not in higher visa costs but in a new U.S. proposal that could fundamentally reshape global outsourcing.
Rajan pointed to the Help In-sourcing and Repatriating Employment (HIRE) Act, now under discussion in the U.S. Congress, saying it could hit India’s service exports and tech workforce much harder than the visa fee increase. The bill aims to impose tariffs on outsourced services, a move that could upend the decades-long model through which American companies have relied on Indian IT and back-office talent.
“One of our biggest concerns is not so much the goods tariffs but if they try and find ways of imposing tariffs on services. This is a threat. There’s the HIRE Act, which Congress is debating, which will try and put 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,” Rajan said, according to DeKoder.
What is HIRE Act?
The Help In-sourcing and Repatriating Employment (HIRE) Act is a proposed U.S. law aimed at curbing the practice of outsourcing jobs overseas—particularly to countries like India by raising the cost of such operations for American companies. The bill seeks to introduce a 25% excise tax on any payment made by U.S. firms to foreign service providers if the services are used within the United States. It would also remove tax deductions for those outsourcing expenses, effectively making overseas contracts more expensive compared to domestic hiring.
READ: US HIRE Act targets outsourcing, Indian workforce braces for fallout (
Revenue collected under the measure would go into a Domestic Workforce Fund, intended to support job training, apprenticeships, and reskilling programs for American workers. The proposal’s broad scope could impact not only traditional outsourcing but also global capability centers, IT back offices, and remote service operations that serve U.S. clients. While the Act is still under consideration and has not become law, its introduction has already sparked concern across the Indian IT and business process outsourcing sector, which relies heavily on U.S. corporate contracts.
Key takeaways:
- Imposes a 25% tax on payments to foreign service providers for U.S.-consumed services.
- Eliminates tax deductions for outsourcing expenses.
- Establishes a Domestic Workforce Fund for U.S. job training.
- Could affect IT, BPO, and offshore service centers tied to U.S. firms.
- Not yet law, but already influencing business sentiment in India’s outsourcing industry.
As per reports, the proposed HIRE Act includes a transition timeline that could take effect as early as January 1, 2026. If Congress approves the bill before December 31, 2025, all payments made by American companies to overseas service providers from that date onward would automatically fall under the 25% outsourcing tax.
Amid these developments, former RBI Governor Raghuram Rajan highlighted that India is already feeling the weight of rising U.S. trade barriers. He noted that Indian exports are currently facing average tariffs of about 50%, higher than the 47% imposed on China, with labor-intensive industries such as textiles and manufacturing among the hardest hit. Rajan warned that the combination of new outsourcing penalties and existing trade restrictions could significantly erode India’s competitive edge in global markets.
“It certainly is a very big issue for India for certain industries – textiles for example – where we probably are losing festival season in the US Going forward, what we don’t want is the supply chains we’ve built up and that we’ve integrated into to be permanently disrupted,” he stated. He stressed that India must aim for lower tariff levels during ongoing negotiations. “It’s extremely important for India that our tariffs be brought down quickly, especially in these areas where we have labour-intensive industries which have made a certain amount of headway into the US,” Rajan added.
READ: India emerges as the new center for US firms amid H-1B visa crackdown (
Rajan also explained that the dependence of Indian firms on H-1B visas has been “diminishing”, as he stated, “over time, the need for H-1B visas for Indian companies has been diminishing because a lot more can be done through virtual networks rather than by physical presence. More than H-1B, it’s a question of whether this outsourcing will be tariffed – and that would be a bigger concern.”
Rajan further clarified that the new H-1B visa fee hike would not impact the existing holders or recent STEM graduates transitioning to jobs in the U.S. “Indian companies can still have personnel in the US – they may recruit more from Indian students who acquire degrees in the US. But finally, it may well be that Indian companies decide they don’t need to send somebody there. Let me hire a couple of people there to do that front-end job, but I will do much more on the virtual side,” Rajan stated.
He further added, “when we think about US companies like Microsoft that hire on an H-1B basis, many more of those people will be hired directly in India but kept in their GCCs and transmitting their work across. There will be adjustments. The net effect will be less H-1B immigration into the US, but it doesn’t look as bad as it seemed at first glance. I think the HIRE Act is much more important for us.”