US HIRE Act: A Bigger Threat to India than H-1B Fees
Former RBI Governor Raghuram Rajan has raised an important alarm regarding the proposed US HIRE Act, suggesting that it poses a greater threat to India than the recent increase in H-1B visa fees. The HIRE Act, which aims to impose tariffs on outsourced services, could significantly impact India's service exports, particularly in the IT sector, which heavily relies on the US market.
Rajan pointed out that the focus should not be solely on the H-1B visa fee hike but rather on how these tariffs could disrupt the flow of Indian services to the US. He expressed concern that if the US Congress passes the HIRE Act, it could impose a 25% excise tax on payments made by American companies to foreign service providers. This could drastically increase the costs for Indian IT service providers, who are already facing challenges in the global market.
With the US accounting for around 70% of India's IT export revenue, the implications of this legislation could be profound. Rajan emphasized that India has already been subjected to high US tariffs, affecting key industries like textiles. He urged for a reduction in tariffs during ongoing trade negotiations, especially for labor-intensive industries that have made strides into the US market.
While discussing the future of H-1B visas, Rajan noted that their necessity for Indian companies is diminishing as many tasks can now be accomplished through virtual networks. He suggested that companies might adapt their hiring strategies by employing more local talent in the US or hiring remotely from India, thus reducing the reliance on H-1B visas.
Rajan’s insights highlight the need for Indian companies to be agile in the face of changing regulations. He believes that the potential impact of the HIRE Act far outweighs that of the H-1B fee increase and could lead to significant adjustments in how Indian firms operate in the US market.
In conclusion, the HIRE Act represents a critical challenge for India's economy, especially its IT sector. As these developments unfold, it will be crucial for Indian businesses to innovate and adapt to ensure continued growth and competitiveness in the global landscape.
