After tariffs and H-1B, another US spectre hangs over India: What's the next big fear?

India's $283-billion information technology sector has thrived for more than three decades exporting mostly software services

US President Donald Trump's sudden and potentially fatal blow to the H-1B visa regime — by which mostly Indian techies and other high-skilled employees fulfilled their American dreams — may just be the first punch in a double blow. After the prohibitive $100,000 fee on H-1B visas, the next shock to fear for the Indian IT sector is a proposal for 25% tax on US firms' payments to foreign outsourcing companies.

A proposed US legislation, called Halting International Relocation of Employment (HIRE) Act, has the same argument as Donald Trump's move to put a massive fee on H-1B visa: that foreign workers or companies are taking away American jobs and revenue. (AI-gen representative image)

So far, the tax spectre is only a Bill, a proposed legislation, introduced in the US Senate early September by Trump's party-mate Bernie Moreno. Called the Halting International Relocation of Employment (HIRE) Act, it has the same argument as Trump's move to put a prohibitive $100,000 fee on H-1B visa: that foreign workers or companies are taking away American jobs and dollars.

At its simplest, it means that if an American company outsources its call centre or software backend or data processing tasks, for instance, to a company in India — things done mostly for lower wages or easier availability of talent — the company should have to pay an additional tax to the US exchequer when sending this money to India.

But most of its revenue is from the US, in some firms' cases it crosses 60% of their total revenue.

IT sector already reeling

India's IT sector is already struggling with weak revenue growth in the mainstay US market as clients defer non-essential spending amid geopolitical uncertainties, including the tariff wars ignited by Trump.

And the levy won't be 25% if federal, state and local taxes are totaled; it could go up to 60%, analysts have told news agency Reuters.

When Senator Moreno introduced the proposed law, he said, “While college grads in America struggle to find work, globalist politicians and C-suite executives have spent decades shipping good-paying jobs overseas in pursuit of slave wages and immense profits — those days are over.”

The bill could also affect US firms' Global Capability Centres (GCCs) in India and elsewhere.

HIRE Act has MAGA support but long road ahead

But the move is more political than legal, analysts also say. Technically, it has to first get listed, then be passed by both houses, and signed by the President into law, which could take months, if all goes by Moreno's wishes.

Moreno has not yet got an endorsement from Trump. Nor does he carry the heft to push it through without consensus at least within the Republican Party as not many leaders have voiced support. The Republican base among the business community has not entirely agreed with the ‘Make America Great Again’ or MAGA ideas on hiring policies, as US talent either does not suffice or costs much more. Support from the Democrats isn't likely on such a policy move either.

It's worth a mention, though, that the H-1B move has faced similar challenges, yet has been pushed through for now.

Thus, the HIRE Act, even if not passed in its current form, may spook firms in the world's largest outsourcing market into changing how much they outsource, analysts have said.

How politics of H-1B, tariffs and HIRE Act overlaps

At its core, it's about America's increasingly inward-looking politics, reflected in high trade tariffs and wider immigration curbs too. This agenda has higher traction, predictably, amongst the more conservative sections of the Trump/Republican support base. White House trade adviser Peter Navarro recently reposted a call from a far-right activist for tariffs on services too, not just goods. Navarro has been acerbic in remarks on India, which is facing 50% tariffs on its exports to the US.

But sweeping restrictions or tax on outsourced services are unlikely, experts told Reuters. "More likely is a diluted version, with narrower provisions or delayed enforcement," HFS Research CEO Phil Fersht was quoted as saying.

The Indian government, meanwhile, reacted briefly on Saturday to the US move to impose the $100,000 fee on H-1B visas. It said the full implications of the measure are being studied.

The American administration has since clarified that the fee is one-time, not annual, and will apply only to new applications, not to renewals, nor to applications already filed before September 21.