The Proposal That Changed the Mood
Introduced by U.S. Senator Bernie Moreno earlier this month, the HIRE Act seeks to curb outsourcing by levying a 25% excise tax on payments made to foreign service providers, while also denying tax deductions on such expenses. The stated goal is to protect U.S. jobs and redirect funds toward workforce development at home.
“The HIRE Act proposes sweeping changes that could alter the economics of outsourcing and significantly increase the tax liability associated with international service contracts,” said Jignesh Thakkar, compliance head at EY India (Reuters).
Why India Feels the Heat
India’s IT sector, valued at $250–283 billion, depends heavily on U.S. clients. From Infosys to TCS, Wipro to HCLTech, the American market drives growth, innovation, and jobs in Indian tech hubs. Any disruption in outsourcing flows directly translates into slower deal closures, tighter margins, and reduced hiring.
“Clients will simply take longer to sign, longer to renew, and longer to commit transformation dollars,” observed Saurabh Gupta, President of HFS Research (Reuters).
Adding to the concerns, Arun Prabhu, partner at law firm Cyril Amarchand Mangaldas, noted: “While its partisan proposal may seem initially attractive, it’s ultimately an artificial cost which makes organisations less competitive and profitable globally” (Reuters).
Ripple Effects Beyond India
It’s not just Indian firms that would feel the pinch. U.S. corporations themselves—many of which run global capability centres (GCCs) in India – could face significant increases in operating costs. These GCCs handle high-end work such as finance, design, and product engineering, and are deeply woven into global value chains.
Analysts warn that the bill, if enacted, may slow down the creation of new GCCs in India and force existing ones to reconsider expansion. That could have knock-on effects on employment, innovation, and global competitiveness.
Political Momentum vs. Practical Challenges
While the bill has stirred debate, its journey into law remains uncertain. It must pass both houses of the U.S. Congress, where lobbying from corporate America is expected to be intense. Enforcement may also prove complex: defining what “benefits U.S. consumers” means, tracking cross-border service payments, and addressing potential loopholes will all be major hurdles.
Still, the symbolism is clear. As The Wire noted, the HIRE Act reflects a broader shift in U.S. policy thinking – one that increasingly ties economic security to domestic job creation, even at the risk of disrupting global outsourcing ecosystems.
A Test of Resilience
For India’s IT sector, the HIRE Act represents both a challenge and a wake-up call. In the short term, firms may see slower deal cycles and tougher pricing negotiations. In the longer term, companies may accelerate efforts to diversify into Europe, Asia, and domestic markets, while investing more heavily in automation and AI to reduce dependence on cost arbitrage.
India’s IT industry has survived many inflection points—from the dot-com bust to the 2008 crisis to pandemic disruptions. The HIRE Act may be its latest test of resilience, but also an opportunity to evolve beyond its traditional outsourcing identity.