By Kavita Mistry 
Former Reserve Bank of India (RBI) Governor Raghuram Rajan has sounded a serious warning about the potential fallout from the proposed HIRE Act, a US legislative move aimed at penalizing outsourcing and offshoring. In an interview with DeKoder, Rajan said the economic impact of this bill could far exceed the recently imposed $100,000 H-1B visa filing fee for employers of foreign talent.
What the HIRE Act Proposes
Introduced by Senator Bernie Moreno, the HIRE (Help In Rebuilding Employment) Act seeks to discourage US companies from hiring cheaper overseas labor by taxing such arrangements. The bill proposes a 25% tax on outsourcing payments made to foreign workers or firms if their work benefits US consumers.
It also prevents US firms from claiming tax deductions for these payments, making the cost of offshoring significantly higher.
How It Works
The HIRE Act defines an “outsourcing payment” as any fee, premium, service charge, or royalty paid by a US company to a foreign entity for work that benefits American consumers.
This means even if a US-based business contracts an Indian IT firm or call center to serve US clients, the US company will now face a 25% tax penalty on that payment.
Rajan cautioned that this effectively extends Trump-era tariffs from goods to services, marking a major policy shift that could damage India’s export-driven IT sector.
Impact on India’s IT and BPO Industry
If passed, the HIRE Act could significantly disrupt the global outsourcing model. India’s $250+ billion IT services industry, led by companies like TCS, Infosys, and Wipro, could face reduced demand from US clients, who account for 60–70% of their business.
Consulting firms, back-office operations, and BPOs handling American contracts would also be affected, as outsourcing becomes less financially viable for US corporations.
Beyond H-1B: A Structural Shift in US Hiring Policy
Rajan emphasized that while the H-1B visa fee hurts individual workers, the HIRE Act threatens the entire outsourcing ecosystem, forcing US companies to hire domestically or invest more in automation.
If enacted, the law will apply to all payments made after December 31, 2025, signaling a long-term structural shift in how US firms engage global talent.
Rajan’s Warning for India
Rajan said India must closely monitor this development, as the HIRE Act could “reshape the economics of global outsourcing.”
He urged policymakers to diversify export markets, invest in local digital capabilities, and strengthen domestic employment opportunities to offset potential revenue losses from the US market.
If the bill passes, India’s tech sector — once the world’s outsourcing powerhouse — may need to reinvent its global strategy to adapt to a protectionist US environment.