A new law proposed in the US has put the $250 billion Indian IT industry in deep worry. Earlier this month, Republican Senator Bernie Moreno of Ohio introduced the bill called “Halting International Relocation of Employment (HIRE)” Act in the US Senate. It aims to encourage US companies to create jobs domestically and reduce dependence on employees abroad.
India, which has been a major hub of global IT outsourcing for years, could be particularly affected by this proposed law. Indian IT companies depend on US clients for most of their revenue, making this bill a cause of concern for them. This initiative comes at a time when trade relations between the US and India are already strained due to President Donald Trump’s tariff policies.
Key provisions of the HIRE Act:
The bill includes three main measures to discourage the shifting of work overseas:
25% outsourcing tax: Payments made by US companies or taxpayers to foreign entities that ultimately benefit consumers in the US are proposed to be taxed at 25 per cent.
Prohibition on tax deductions: Companies will not be allowed to deduct costs associated with outsourcing from taxable income, making it more expensive to spend on overseas work.
Domestic workforce fund: Any revenue generated from this tax will be channelled into a newly created Domestic Workforce Fund.
Possible implications for Indian companies:
India has played a leading role in the IT outsourcing sector over the past 30 years. Major IT companies such as Tata Consultancy Services (TCS), Infosys, Wipro, HCL Tech and Tech Mahindra generate 50 to 65 per cent of their total revenue from North America.
These companies provide services such as software development, systems integration, cloud services and business process outsourcing (BPO). Their clients include many major Fortune 500 names such as Citigroup, JP Morgan Chase, Bank of America, Pfizer, Microsoft and Saint Gobain.
If the HIRE Act is implemented, the income of these companies may be directly affected and there is a possibility of a decline in IT service revenue coming from the US.
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