Understanding the HIRE Bill and Its Impact on India

HIRE Bill AND ITS IMPACT ON INDIA

1. What is the HIRE Bill?

The HIRE (Halting International Relocation of Employment) Bill, 2025 is a U.S. legislative proposal aimed at discouraging outsourcing. It imposes a 25% excise tax on payments made by U.S. companies to foreign service providers and also makes such payments non-deductible for tax purposes.

2. What does “denies tax deductions for such payments” mean?

Normally, U.S. companies can deduct outsourcing expenses—such as IT service payments to Indian firms—from their taxable income, which reduces overall tax liability. Under the HIRE Bill, these deductions would no longer be permitted.

Example before the HIRE Bill:

• A U.S. company earns $1,000,000.
• It pays $200,000 to an Indian IT service provider.
• The $200,000 is deducted, so tax is levied on $800,000.

Example after the HIRE Bill:

• The $200,000 paid overseas cannot be deducted.
• The company is taxed on the full $1,000,000.
• Additionally, it pays a 25% excise tax on the $200,000 outsourcing expense.

3. Why has the U.S. introduced this Bill?

The Bill is designed to retain jobs within the U.S. by making outsourcing financially unattractive. The underlying idea is to protect American workers and encourage businesses to hire locally rather than shifting work overseas.

4. How does the Bill impact India’s IT, BPM, and GCC sectors?

• The U.S. accounts for 50–60% of Indian IT exports.
• Client costs could rise by up to 46%, putting pressure on outsourcing contracts.
• Indian IT companies may see margins shrink by 300–700 basis points.
• Smaller and mid-sized firms are particularly vulnerable due to limited financial buffers.

5. What changes might Indian firms be forced to make?

To adapt, Indian companies may:
• Renegotiate contracts with U.S. clients to share higher costs.
• Nearshore operations to regions like Mexico or Canada.
• Invest in AI, R&D, and automation to become capability-driven rather than cost-driven.

6. Could this affect U.S. companies too?

Yes. While the Bill targets foreign service providers, U.S. businesses that outsource for cost efficiency will also face higher operational expenses.

• Large firms may absorb the impact.
• Mid-tier companies with 12–15% margins could face serious financial strain.

7. How many Indian jobs are at risk?

The Indian IT-BPM sector employs around 2.5 million people. If the Bill is fully implemented, 30–40% of jobs could be at risk, which means nearly one million employees may be affected.

8. What remedies are available for India’s IT industry?

To reduce dependence on U.S. clients, Indian firms can:
• Diversify markets by expanding in Europe, Japan, and Asia-Pacific.
• Develop domestic capability centres to strengthen resilience.
• Move up the value chain from routine outsourcing to innovation-led services.
• Engage in trade negotiations to seek exemptions or mitigate the impact.

9. Will the Bill definitely become law?

Not necessarily. While such measures have been proposed before, many have failed due to opposition in the U.S. Congress. Critics argue that restrictions on outsourcing could hurt U.S. global competitiveness rather than help it.

Quotation

“Resilience is not about avoiding storms, but about learning to build stronger ships that can sail through them.”