Clipped from: https://www.thehindubusinessline.com/opinion/editorial/it-under-fire/article70034319.ece
Indian IT players must heed the warning in the HIRE Bill
The IT sector needs to rely less on outsourcing and focus more on product development and innovation | Photo Credit: PICHUMANI K
So far, US’ trade offensive against India had been limited to merchandise trade. Indian IT service players, who derive a significant portion of their revenues from the US, had been sanguine that they would not be impacted by the tariff offensive. Their confidence stemmed from the fact that members of the World Trade Organisation, in 1998, agreed not to impose levies on digital services through an ‘e-commerce moratorium’. This has been ‘renewed’ over the years. But the Bill introduced by US Senator Bernie Moreno, namely, Halting International Relocation of Employment Act or HIRE Act, comes as a surprise that could hurt Indian IT services and Global Capability Centres (GCCs). While chances are that the Bill may not become law, certainly not soon, it should serve as a warning to Indian companies to address their vulnerabilities.
The Bill is also likely to face stiff resistance within the US as it aims to punish US companies which are hurting American workers by “shipping good-paying jobs overseas in pursuit of slave wages and immense profits.” The Act proposes a 25 per cent tax on all outsourcing payments paid by a US company or taxpayer to a ‘foreign person’ for work which benefits consumers in the US. The definition is so broad that it covers all kinds of outsourcing by US companies including information technology, finance, research and development, marketing and customer service. US companies using low-cost labour from India and other emerging economies will be badly hit if the legislation is passed. The Act further states that such outsourcing payments cannot be claimed as deductions, increasing the tax outgo of the companies.
The Act may not become a reality anytime soon. All eyes will be on the e-commerce moratorium pact when it comes up for review early 2026. Meanwhile, US companies are likely to oppose this Bill vehemently as it can dent their profitability. Given the smaller pool of adequately qualified workers in the US, they will find it difficult to onshore these jobs. The Bill also appears to include GCCs set up by MNCs such as Alphabet, Apple, Amazon and Meta in low cost jurisdictions. With large investments already having been made in these facilities, these companies will not want punitive taxes.
Even if the Bill is not passed, large US MNCs may rethink outsourcing their operations and opt for a higher proportion of local labour going forward, notwithstanding the constraints. Indian IT players, already grappling with slowing revenue due to the uncertain global environment, technology shifts and increasing competition, will find it difficult to deal with this setback. They must try to reduce their dependence on the North American region which accounts for a large chunk of the revenue and diversify to Europe and countries in the APAC region such as Japan and Singapore. Indian IT should overhaul its business model, stop relying on outsourcing and turn its attention to product development and innovation to build a more sustainable business.
Published on September 10, 2025
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