There is increasing anxiety across India’s IT services sector — made worse by worrying media headlines and a widespread social media chorus — that after Trump’s 50% tariff onslaught on Indian merchandise exports, the proposed American HIRE Act now threatens to upend the country’s major source of white-collar job creation, already being disrupted by AI.
Many fear that this new wave of American protectionism focused on outsourcing could severely damage the prospects of India’s IT sector. This sector is crucial not only for creating well-paying white-collar jobs but also for supporting multiple Indian industries such as automobile, consumer electronics, real estate, travel, and tourism. If the sector suffers, it could ripple through these industries, slowing overall economic growth and job creation.
Outsourcing to India Remains Irreplaceable
The HIRE Act (Halting International Relocation of Employment) is a proposed US legislation aiming to curb outsourcing by American companies. If enacted, it would impose a 25% excise tax on payments made to foreign entities—including Indian IT firms and captives—for services consumed by American residents, while also ending tax deductions for such payments. This legislation — ostensibly designed to force jobs back to American soil — will raise the effective cost of outsourced work for US companies by as much as 50% and undermine the very rationale for outsourcing: reducing costs and improving margins, driving many firms to reconsider longstanding global delivery models.
But will this anti-outsourcing legislation actually see the light of day?
Highly unlikely.
Much like Trump’s 50% import tariff, the HIRE Act is less about job creation and more about pressuring India on energy, defence, and trade. It’s a tool of economic coercion unlikely to pass in a highly financialized US economy, making the panic around it largely misplaced. India remains vital to US corporate efficiency, with around 60% of American companies outsourcing to India.
Over a third of global giants, including Apple, Walmart, and JPMorgan, operate captive centres in India, leveraging its skilled talent pool. This ecosystem spans sectors and employs over 2 million professionals, making India indispensable to global operations.
The Indian Advantage
These companies choose India not out of charity, but because it is cheaper and more efficient. Outsourcing to India helps them slash operational costs by as much as 60-80%. For these American companies — whether manufacturers, retailers, or Silicon Valley giants — outsourcing to India keeps costs down, margins up, and boards happy. Thus, relocating service and support work back to the US will mean higher wages and increased overhead costs, leading to lower margins and higher prices, hitting both shareholders and consumers. No serious policymaker would want that outcome, especially a businessman‑turned‑politician like Trump. In the current business landscape, where every percentage point of profit margin is fiercely contested, a law that pushes up the cost of doing business is a no-go.
Supporters of the HIRE Act, and those echoing its rhetoric, often ignore glaring realities. US companies have become strong defenders of outsourcing because it directly affects their profits. For these firms, outsourcing isn’t just a cost advantage; it’s a competitive necessity — especially given the shortage of skilled workers at home. American service and support operations simply cannot be scaled up overnight to replace work outsourced to India. Previous attempts to “onshore” jobs have routinely failed, as complex global supply chains cannot be rewired at political whims.
If forced to end outsourcing to India, American firms — especially tech majors whose growth, innovation, and shareholder returns depend on nimble, efficient support — would have to choose between profitability and political compliance. That is not a choice Wall Street will allow. In a system where stock market performance and corporate earnings are inseparable, a move that triggers profit erosion and consumer inflation during economic uncertainty is simply untenable.
The proposed Act must also be seen in a wider context. Across the world, whether in developed or developing economies, populist leaders are exploiting the grievance that imports, immigration, and outsourcing are killing local jobs. Trump has been particularly adept at weaponizing this narrative to win votes and rally his base.
What’s at Stake for India’s Broader Economy
But the reality is very different from what populist rhetoric suggests. Historically, immigration, imports, and outsourcing have supported — not depleted — American economic growth: supplying labor, fuelling innovation, and broadening consumer demand for goods and services. In fact, they create more jobs than they take away. Immigrants, for example, also increase demand for homes, education, and transportation — all of which strengthen and not weaken local economies. Demagogic attacks on outsourcing miss the bigger picture: Indian IT services are not hollowing out American competitiveness; they’re propping it up by helping US MNCs stay competitive in global markets by lowering their costs of operation.
The HIRE Act is less about sound economic policy and more about political theatre—aimed at extracting concessions from India while offering Trump a populist narrative. If enacted, it would hurt American companies far more than Indian ones by driving up costs, shrinking margins, and disrupting markets. Outsourcing to India remains a profit-driven necessity, not a charitable gesture. US firms rely on India’s skilled workforce and cost efficiencies to stay competitive; dismantling that model would be self-defeating.
Ultimately, economic logic—not populist rhetoric—will shape the future of outsourcing. India will continue to play a central role in global service delivery.
However, the true long-term challenge for India’s IT sector isn’t US protectionism but the rise of artificial intelligence. AI threatens to automate many core IT functions, posing a deeper and more enduring disruption. Unlike the HIRE Act, AI is a structural shift Indian firms must adapt to swiftly and strategically.
(Ritesh Kumar Singh is a business economist and CEO, Indonomics Consulting Private Limited.)
Views are personal, and do not represent the stance of this publication.
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