India has more to worry about than Trump's $100,000 H-1B visa fee, says Raghuram Rajan

Former Reserve Bank of India (RBI) Governor Raghuram Rajan has said the proposed US Halting International Relocation of Employment (HIRE) Act is a greater concern for India than the recent hike in H-1B visa fees.

In an interview with DeKoder, Rajan said the HIRE Act could impose tariffs on outsourced services, not just on goods, which would directly affect India’s information technology and services exports. “One of our biggest concerns is not so much the goods tariffs but whether they try and find ways of imposing tariffs on services. This is a threat,” he said.

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He explained that the US Congress is debating the HIRE Act, which aims to tax outsourced work. “How that’ll be implemented is anybody’s question, but this creeping of tariffs beyond goods to services to Indian visitors into the US through the H-1B route – these are all concerns,” Rajan added.

What the HIRE Act Proposes
The Halting International Relocation of Employment (HIRE) Act seeks to encourage job creation within the United States by discouraging outsourcing. It introduces a 25 per cent outsourcing tax on payments made to foreign workers for services used within the US. Businesses will also no longer be able to claim these outsourcing payments as tax-deductible expenses. The revenue from this tax will go into a Domestic Workforce Fund to support training and apprenticeship programmes for American workers.

Rajan said that while the US is focusing on retaining jobs domestically, India’s service sector could face a direct impact if such tariffs are introduced. He noted that the extension of tariffs from goods to services marks a shift in trade policy that needs close attention.

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Rajan on H-1B Fee Hike
On the issue of H-1B visas, Rajan said the overall need for such visas has already declined as many services can now be delivered digitally. Indian companies, he said, are doing more backend work from India while hiring locally in the US for customer-facing roles.

“Indian companies can still have personnel in the US, they may recruit more from Indian students who study there. But much more can now be done virtually,” he said. Rajan added that existing H-1B holders and students with science, technology, engineering and mathematics degrees in the US are unlikely to be affected in the short term.

He said the changes could encourage more India-based hiring by global firms. “Companies like Microsoft that hire on an H-1B basis may now hire more people directly in India through their global capability centres,” Rajan noted. “There will be adjustments, and the net effect will be less H-1B immigration, but it doesn’t look as bad as it first seemed. The HIRE Act is much more important for us,” he added.

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Warning on Trade Disruptions
Rajan cautioned that India must act quickly to prevent long-term disruption to its exports due to the current tariff environment. “It’s a big issue for labour-intensive sectors like textiles. We don’t want the progress we’ve made in accessing the US market to be permanently set back,” he said.

He pointed out that the US has already imposed a 50 per cent tariff on Indian imports, including a 25 per cent penalty for crude oil sourced from Russia, effective from August 27.

Rajan concluded that India needs to stay alert to policy shifts in major markets, as measures like the HIRE Act could affect not just trade in goods but the country’s growing digital and service exports as well.