Raghuram Rajan warns US HIRE Act poses bigger risk to India than H-1B visa fee hike

Former RBI Governor Raghuram Rajan - File Photo

Former Reserve Bank of India (RBI) Governor Raghuram Rajan has warned that the proposed US Halting International Relocation of Employment (HIRE) Act poses a far greater risk to India’s economy than the recent hike in H-1B visa fees.

In an interview with DeKoder, Rajan said the HIRE Act could extend tariffs beyond goods to include outsourced services, directly hitting India’s information technology and services exports.

“One of our biggest concerns is not so much the goods tariffs but whether they try and find ways of imposing tariffs on services. This is a threat,” Rajan said.

He explained that the legislation currently being debated in the US Congress aims to tax outsourced work, a move that could have wide-ranging implications for countries like India that rely heavily on service exports.

“How that’ll be implemented is anybody’s question, but this creeping of tariffs beyond goods to services to Indian visitors into the US through the H-1B route – these are all concerns,” Rajan added.

What the HIRE Act proposes

The Halting International Relocation of Employment (HIRE) Act seeks to discourage outsourcing and promote job creation within the United States. It proposes a 25 per cent outsourcing tax on payments made to foreign workers for services used within the US.

The bill also removes the ability of companies to claim these outsourcing payments as tax-deductible expenses. The collected revenue will be channelled into a Domestic Workforce Fund designed to finance training and apprenticeship programs for American workers.

According to Rajan, such a move would mark a significant shift in trade policy. “The extension of tariffs from goods to services is something that needs very close attention,” he said.

Rajan on H-1B fee hike

While the H-1B visa fee increase has drawn concern in India, Rajan believes its impact will be limited compared to the HIRE Act. He pointed out that demand for H-1B visas has already fallen as more services are being delivered digitally from India.

“Indian companies can still have personnel in the US, they may recruit more from Indian students who study there. But much more can now be done virtually,” he said.

Rajan added that many Indian IT firms are adapting to the changing environment by hiring locally in the US for client-facing roles and expanding their India-based operations for backend functions.

“Companies like Microsoft that hire on an H-1B basis may now hire more people directly in India through their global capability centres,” Rajan noted. “There will be adjustments, and the net effect will be less H-1B immigration, but it doesn’t look as bad as it first seemed. The HIRE Act is much more important for us.”

Warning on trade disruptions

Rajan also cautioned that India must remain proactive to avoid long-term disruptions to its exports amid an increasingly protectionist global environment.

“It’s a big issue for labour-intensive sectors like textiles. We don’t want the progress we’ve made in accessing the US market to be permanently set back,” he said.

He pointed out that the US has already imposed tariffs of up to 50 per cent on Indian imports, including a 25 per cent penalty on crude oil sourced from Russia, which came into effect on August 27.

Rajan concluded by urging policymakers to closely monitor trade developments in major markets. Measures such as the HIRE Act, he said, could reshape not only global trade in goods but also India’s fast-growing digital and service exports.

“India needs to stay alert to policy shifts in major markets,” he said. “The HIRE Act could affect not just trade in goods but also the country’s growing digital and service exports.”