What is the US HIRE Bill and why is India’s $250-billion IT sector worried?

The United States has unveiled a new piece of legislation that could have far-reaching implications for India’s $250 billion IT services industry.

The bill, called the Halting International Relocation of Employment (HIRE) Act, was introduced in the US Senate earlier this month by Republican Senator Bernie Moreno of Ohio.

The proposed legislation seeks to impose steep penalties on American companies that outsource jobs overseas, a move aimed at encouraging companies to hire locally and reduce dependence on foreign workers.

Given that India has long been a hub for IT outsourcing and related services, the bill has created concern across the Indian tech sector, which depends heavily on US clients for revenue.

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The introduction of this bill comes at a time when US-India trade relations are already under stress due to US President Donald Trump's tariffs.

Trump’s second term agenda has put a spotlight on bringing jobs back to America and reducing reliance on offshore labour.

What the proposed HIRE Bill says

The HIRE Bill lays out three major provisions designed to discourage the outsourcing of work to foreign countries:

• 25 per cent Outsourcing Tax: The bill proposes a 25 per cent tax on outsourcing payments, defined as any money paid by a US company or taxpayer to a foreign entity or individual whose services ultimately benefit consumers in the United States.

• Ban on tax deductions: It would also prohibit companies from deducting outsourcing expenses from their taxable income, increasing the financial burden of sending work abroad.

• Domestic workforce fund: Revenue generated from the outsourcing tax would be directed into a newly created Domestic Workforce Fund. This fund would be used to finance apprenticeships, worker retraining initiatives, and workforce development programmes aimed at strengthening the US labour pool.

Defending the motive behind the bill, Moreno 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.”

“It’s time to fight for working class Americans and ensure they can work and retire with dignity. If companies want to hire foreign workers instead of Americans, my bill will hit them where it hurts: their pocketbooks.”

Moreno added that he plans to push the legislation forward quickly. “We will know which Republicans are on board and which ones aren’t and will make the Democrats take a vote,” he stated.

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Since the proposal introduces a new tax, it must first be brought before the US House of Representatives, then passed by both chambers of Congress before reaching the US president’s desk for approval.

Why the bill directly targets outsourcing

Outsourcing has long been a cornerstone of business operations for many American companies, especially in sectors such as technology, finance, healthcare, and retail.

For decades, companies have relied on countries like India for a steady supply of skilled, cost-effective labour.

Moreno’s bill is part of a broader push to reverse this trend. By imposing a significant tax on companies that choose to employ foreign workers, the legislation seeks to financially disincentivise offshoring and make domestic hiring comparatively more attractive.

Trump has been vocal about reshoring jobs as part of his economic agenda. In recent months, senior White House trade adviser Peter Navarro has amplified this rhetoric, advocating for tariffs on outsourcing and foreign remote work.

Navarro’s stance reflects a hardline faction within the Trump administration focused on protectionist trade and labour policies.

Moreno has previously introduced measures penalising executives who employ undocumented workers.

How this may impact on Indian IT services and BPO sector

India has been one of the biggest beneficiaries of outsourcing over the last three decades.

Major Indian IT firms — Tata Consultancy Services (TCS), Infosys, Wipro, HCLTech, and Tech Mahindra — derive 50 to 65 per cent of their total revenue from North American clients, according to reported industry estimates.

These companies handle a wide range of services, including software development, systems integration, cloud management, and business process outsourcing (BPO).

They also serve numerous Fortune 500 companies such as Citigroup, JPMorgan Chase, Bank of America, Pfizer, Microsoft, and Saint Gobain.

The potential introduction of a 25 per cent outsourcing tax, along with the inability to deduct outsourcing costs, could dramatically increase expenses for US firms that rely on Indian partners.

As a result, these companies might either scale back their offshore operations or pass on the additional costs to consumers.

Even Global Capability Centres (GCCs) — offshore technology hubs set up by multinational corporations — could see their operations disrupted.

GCCs have become a vital part of the global business landscape. Many American companies, especially in finance, retail, and technology, have established large-scale centres in India to handle software development, analytics, and back-office functions.

Why this may be bad timing for India’s IT sector

The introduction of the HIRE Act comes at a difficult moment for the Indian technology sector. Even before the bill’s announcement, IT firms were grappling with a range of issues:

• Pricing pressures as clients cut costs.

• Slower discretionary spending by American corporations due to economic uncertainty.

• Artificial intelligence (AI) disruption, which is automating certain tasks and reducing demand for traditional services.

• Muted hiring as firms focus on efficiency and automation.

Industry experts warn that adding a new tax on outsourcing could further squeeze margins and make it harder for companies to close deals.

To mitigate these risks, many Indian firms have begun diversifying their client base, expanding into regions like Asia, Japan, Australia, the Nordic countries, and West Asia.

However, this diversification is still at an early stage, and the US remains the dominant source of revenue for most large Indian IT companies.

Why Indians may not have to worry yet

Under current World Trade Organisation (WTO) rules, member countries are prohibited from imposing duties on digital services.

India and the United States had previously reached an understanding in which India agreed to withdraw its equalisation levy on digital services, helping ease tensions around cross-border taxation.

Many analysts believe the HIRE bill will face significant hurdles before becoming law.

US companies that rely on offshore talent are expected to lobby against the bill, arguing that domestic hiring cannot fully replace the scale, skills, and cost-effectiveness offered by countries like India.

Experts point out that the US workforce simply does not have enough trained professionals to meet the demand for technology services, particularly in specialised fields like cybersecurity, data analytics, and advanced software engineering.

Over the past year, leading US firms such as Google, Apple, Meta, Microsoft, and OpenAI have expanded their operations in India, establishing new engineering hubs, AI partnerships, and large office spaces in cities like Bengaluru and Hyderabad.

Together, Facebook (Meta), Amazon, Apple, Microsoft, Netflix, and Google (Alphabet) have hired more than 30,000 employees in India in the past 12 months, reported Moneycontrol.

For now, the industry remains in a wait-and-watch mode.

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With inputs from agencies