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US HIRE Act 2025 AND ITS IMPLICATIONS FOR Indian IT sector
What is the HIRE Act 2025?
The Halting International Relocation of Employment (HIRE) Act 2025, introduced by Republican Senator Bernie Moreno, is designed to discourage US companies from outsourcing jobs overseas. The proposal includes:
- A 25% penalty tax on payments to foreign workers when services ultimately benefit US consumers.
- Disallowing outsourcing-related expenses as tax deductions in US filings.
- Mandatory reporting of outsourcing costs, with penalties for underreporting.
- Directing funds raised into a new Domestic Workforce Fund to support apprenticeships, reskilling, and workforce development programs.
The Bill covers IT services, customer support, back-office operations, design, research & development, and other functions that can be shifted abroad.
What is the Rationale Behind It?
Senator Moreno argues that US students and graduates face stagnant wages because jobs are outsourced to lower-cost countries. The Bill aligns with Donald Trump’s protectionist agenda that prioritizes American jobs over foreign labor. It also reflects concerns that US firms have significantly benefited from outsourcing hubs such as India and China.
What Happens If It is Passed?
Analysts believe the Bill has a low probability of passing due to strong industry opposition. However, if enacted:
- US companies would face higher operational costs and reduced competitiveness.
- The 25% penalty tax could deter outsourcing, forcing firms to either absorb additional costs or restructure their business models.
- Past attempts, such as efforts to restrict Apple’s overseas manufacturing, faced significant pushback from industry groups, suggesting similar resistance here.
How Will India Be Affected?
The Indian IT industry and the Global Capability Centres (GCCs) of US multinationals would be the most affected. Companies such as TCS, Infosys, and Wipro, along with Microsoft, Google, and JPMorgan, operate over 1,200 GCCs in India.
According to HSBC estimates, Indian IT exports to the US—valued at more than $110 billion annually—could face significant disruption. In response, Indian firms may be compelled to adopt near-shore or hybrid delivery models closer to the US.
Protectionist Sentiments in the US
A large segment of US voters perceives outsourcing as damaging to domestic employment. Surveys indicate that 80% of Americans believe manufacturing should return to the US, while 42% oppose outsourcing services. This trend underscores a growing skepticism toward globalization, a narrative strongly emphasized in Donald Trump’s campaigns.
Synopsis
The HIRE Act 2025 highlights the rising wave of US protectionism aimed at outsourcing, particularly in IT and service industries. Although unlikely to pass in its present form, its approval would directly impact India’s $110+ billion IT exports and the operations of US firms’ global capability centres. Beyond economic consequences, the Bill reflects a political climate in which domestic job protection outweighs the efficiency gains of globalization.
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