Former RBI Governor Raghuram Rajan has warned that the US HIRE Act is a more significant threat to India’s economy than the recent $100,000 hike in H-1B visa fees. Even though the price hike would cause short-term disruptions, Rajan stated that the Act’s power to levy tariffs on outsourced services could have a more significant, long-lasting, and detrimental impact on India’s service export sector and the global talent supply chain.
Rajan’s Warning on the HIRE Act
As Rajan argued, “the greater fear longer-term is not really on goods but that the tariff war could spread to services as well under a largely irrelevant HIRE Help In-sourcing and Repatriating Employment Act making rounds of the US… In a country with a chronic trade surplus in the services area, this would be devastating for our IT and future service industry”. Since India has already suffered record-high tariffs on physical goods, particularly textiles, the same could also happen to services.
Impact on Indian Services and Supply Chains
India is “the country that’s already being hurt by the U.S.,” as it pays 50% tariffs on an array of goods, more than China’s 47%, which disrupted the seasons the most, especially during the US festival season. As a result, “the last thing we want to see is our supply chains, built up over several years and decades, disrupted in permanent ways”. Rajan requested active efforts to work with partners to adjust tariff levels, as American consumers have become accustomed to industry-produced, labor-intensive products.
Perspective on H-1B Visa Fee Hike
Regarding the raised H-1B visa fees of $100,000, Rajan is more optimistic that their negative impact will not be as severe as expected. Indian companies send fewer employees on H-1B visas directly, as more work is conducted through virtual work networks. Moreover, workers with existing visas and STEM graduates who shift from studying to working are not affected by new fees. If fees are actually imposed, firms might either try to attract Indian students already in the United States or increase the share of virtual work in India. Thus, this way, H-1B immigration will be reduced, but it could lead to the formation of operations centers by Indian firms in a prior period.
Future Adjustments Expected
Rajan predicts significant changes in which Indian companies could select fewer U.S.-based employees to perform such tasks at the front end. Most of the remaining tasks are being completed from India. This transition would support India’s IT and services sectors in reducing their reliance on visas for physical presence as they adapt to the future trade and immigration regime.
Conclusion
To sum up, in Raghuram Rajan’s article, the former RBI Governor argues that if the HIRE Act is passed and tariffs threaten the service outsourcing sector, it will be much more of a headache for India than a $2,000 increase in the H-1B visa fee. The potential future changes to India’s service exports and the global talent pool could be even longer than if the Act were passed. Accordingly, India’s strategic response is theorized to focus on tariff negotiations and adapting work behaviors to secure its current leadership in the global services sector.