Photo Credit: Parinita Mathur
Clear Cut Livelihood Desk
New Delhi, UPDATED: Sep 12, 2025 10:20 IST
Written By: Paresh Kumar
A storm may be gathering. The U.S. Senate is considering the HIRE Act. Short form for Halting International Relocation of Employment. It proposes a 25 percent tax on payments U.S. firms make when they outsource jobs abroad. And those payments would no longer be deductible.
That measure, if passed, could reshape the future of India’s IT industry. It would hit at the very model that made India an export powerhouse. It would chip away at the cost edge that helped build our IT middle class, our boom towns, our global footprint.
The Risk: Cost Arbitrage, Repriced
Right now, roughly 60 percent of Indian IT revenue comes from U.S. clients.
A U.S. client paying $100 for offshore work enjoys a tax shield. But under the HIRE Act, they would pay $125, with no deduction. After tax, that jumps cost by nearly 60 percent.
The effect would be brutal. Pricing would shrink. Deals would stall. Commoditized services, such as application maintenance or call-centre work would feel the squeeze first.
Indian IT giants might try to absorb some of the tax. That would eat into margins already under pressure from AI and global slowdown.
A Structural Wake-Up Call
Yet the HIRE Act may be more alarm than artillery. It faces significant hurdles. A WTO moratorium bars duties on digital services until March 2026.
And U.S. lawmakers may balk at raising costs for business. Past bills like this failed to gain traction.
Still, uncertainty alone stings. Stock indices like Nifty IT have already slipped on rumour.
For India, cost arbitrage is fragile. AI is already eroding it. The HIRE Act is the alarm bell.
What India Must Do: Diversify and Build
The world is changing. Relying on being “cheaper” is no longer enough. The future lies in specialization, innovation, trust, things that cannot be taxed. The industry must respond.
- Diversify theatres. U.S. may still dominate today, but Europe, Asia-Pacific, the Gulf, Africa, they must become tomorrow’s markets. Indian firms have started pivoting.
- Invest in high-end skills. Move from commoditized services to transformation, data, AI. Embed domain expertise. Build products, not just programs.
- Lean into domestic demand. India’s own digital economy is surging. From small business tech to government cloud, the local market can absorb talent and innovation.
- Strengthen policy levers at home. India’s recent removal of the “intermediary services” clause under GST unlocks clearer export tax benefits for IT and Global Capability Centres. That must link with skilling, research, and funding.
India’s Real Opportunity: Viksit Bharat in the Making
A crisis man-made, yes! But also, a pivot point. This moment asks for more than survival. It asks for transformation.
We could be writing the next chapter: India not as the back office of the world, but as its innovation hub. A place where products, platforms, firms, homegrown, power global flows. A Viksit Bharat not built on cost advantage, but on competence.
If the HIRE Act ferments backlash abroad, let it catalyse reform at home. Let it drive us away from fragility and toward resilience. It will not be easy. But the scaffolding is here. And so is the opportunity.
