Indian IT Companies Face Uncertainty As US HIRE Act Targets Outsourcing

India's information technology sector may face a fresh challenge if a new US legislative proposal aimed at curbing outsourcing is passed. The Halting International Relocation of Employment (HIRE) Act, introduced by Republican Senator Bernie Moreno of Ohio, seeks to discourage American companies from hiring foreign workers.

What Is The HIRE Act?

The Halting International Relocation of Employment (HIRE) Act is designed to reduce outsourcing by US companies, particularly work sent abroad that benefits American consumers. If enacted, it would impose a 25% excise tax on payments made to foreign workers and restrict companies from claiming these payments as tax-deductible expenses.

The proposed law also aims to promote domestic job growth by channelling the tax revenue into a Domestic Workforce Fund, which would finance training programmes and apprenticeships for American workers.

Why Should India's IT Sector Be Concerned?

According to Reuters, India's $283-billion information technology industry has long been a global outsourcing hub, serving clients such as Apple, American Express, Cisco, Citigroup, FedEx and Home Depot. Analysts and lawyers told Reuters that the sector now faces a period of uncertainty, with clients reportedly delaying or renegotiating contracts while the US considers the HIRE Act.

Even though the legislation is not expected to pass in its initial form, it is likely to gradually influence the way firms in the world's largest outsourcing market procure IT services, reshaping long-standing outsourcing practices.

How Could The Bill Affect Indian IT Companies Financially?

The proposed tax could raise expenses for American companies that rely on foreign IT services. Analysts told Reuters that the HIRE Act could raise the tax burden on international service contracts, with combined federal, state, and local taxes driving the total levy on outsourced payments up to 60% in some cases. Reuters also cited legal experts as saying that, though companies are likely to engage in lobbying efforts and may challenge the bill in court, implementing such broad restrictions would be difficult.

What Other Areas Could The HIRE Act Impact?

Beyond outsourcing, the bill could influence global capability centres (GCCs) of US firms. These centres, which evolved from low-cost offshore back offices into high-value hubs supporting operations, finance, R&D and innovation, might face changes in investment and operational priorities if hiring foreign talent becomes more expensive, according to Reuters.