Raghuram Rajan, a former governor of the Reserve Bank of India, has warned that tariffs on outsourced services could have disastrous long-term effects on India's service sector and that the proposed US HIRE Act poses a greater threat to the country's economy than the recent $100,000 increase in the H-1B visa fee.

Rajan stressed in a recent interview with media outlet DeKoder that although the increase in H-1B fees would cause temporary disruptions, the possible expansion of tariffs under the HIRE (Help In-sourcing and Repatriating Employment) Act could have far more long-term effects on India's $225 billion IT and business process management industry.

Key Highlights

• Raghuram Rajan warns US HIRE Act could impact India’s service exports more than H-1B changes.
• The Act may restrict outsourcing and cross-border hiring, posing risks to India’s tech-driven trade sector.

Services sector is more at risk than goods

"One of our main concerns is that they try to impose taxes on services, rather than just commodities. This is a threat," Rajan stated. The economist mentioned that Congress is considering the HIRE Act, which proposes a 25% excise tax on payments made by US corporations to overseas workers for services that benefit American customers.​

The measure, sponsored by Ohio Senator Bernie Moreno in September 2025, would also bar US firms from claiming tax breaks on outsourcing payments and redirecting funds to a "Domestic Workforce Fund" for American worker training. If passed, the law will apply to payments made after December 31, 2025.

Rajan's concerns appear to be well-founded, considering recent data revealing that India's exports to the United States have already fallen 37.5% between May and September 2025, from $8.8 billion to $5.5 billion, as a result of existing tariff rises that hit 50% in late August. India today faces a record 50% US tariffs, compared to 47% for China, impacting major industries such as textiles.

Indian companies adapting to H-1B rules

Regarding the H-1B visa fee hike, Rajan stated that the impact may be less severe than previously thought. "Over time, Indian companies' need for H-1B visas is declining because much work can now be done through virtual networks rather than physical presence," he told me. The increased cost solely applies to new applicants and excludes current H-1B holders and STEM graduates who are currently in the United States.

Rajan highlighted that Indian corporations are already responding by recruiting more locals in the United States, including Indian students who have graduated from American universities, while running the majority of their operations virtually from India. This transition could benefit India's Global Capability Centers (GCCs), as corporations such as Microsoft, which traditionally relied on H-1B visas, may instead grow their India-based operations.

Urgent Action Required on Trade Negotiations

The former RBI chairman encouraged India to prioritize tariff reductions in ongoing trade talks with the US, particularly for labor-intensive companies that have established a presence in American markets. "It's extremely important for India that our tariffs be brought down quickly, especially in areas where we have labor-intensive industry which has made a certain amount of headway into the US," noted Rajan.

Also Read: India & US Near Trade Deal to Cut Import Tariffs to Around 15-16%

He advised India to negotiate a 10-20% pricing range, warning against the dangers of making short-term tactical promises without addressing long-term consequences. Recent export figures show that smartphones and pharmaceuticals have suffered the most, with smartphone exports falling 58% from $2.29 billion in May to $884.6 million in September 2025.