'Tariffs Beyond Goods To Services': Raghuram Rajan Sees US HIRE Act As India's Big Worry

Former Reserve Bank of India Governor Raghuram Rajan expressed concerns regarding the US mulling over implementing the Halting Relocation of Employment Act.

He remarked that it may have more severe ramifications for the Indian economy in comparison to the hike in H-1B visa fee to $100,000.

According to Rajan, who was being interviewed by DeKoder, the act would entail the US imposing a 25% tax on outsourced payments made to workers outside of the US for services rendered within the nation. It will prohibit businesses from claiming these payments as tax-deductible expenses.

This "creeping of tariffs beyond goods to services" will be a major concern for India, according to the ex-RBI governor.

"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," Rajan said.

If implemented, the revenue from this taxation will go to a Domestic Workforce Fund for training and apprenticeship programmes for US residents.

"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 stated.

Despite the intention to create more jobs domestically, and to discourage US businesses from outsourcing jobs abroad, this act may also pose challenges to India's services sector as they would face a loss in business as a result.

Rajan had less apprehension regarding the US's H-1B work visa regulations, saying that digitisation of services has greatly reduced the need for such visas as workers can render these services remotely from India itself via digital means.

"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.

He further said that those who already have H-1B visas and students who have science, technology, engineering and mathematics degrees in the US are not likely to be adversely impacted in the short term.

Rajan stated that this may instead incentivise US firms to hire more Indian companies for their requirements.

Companies like Microsoft that hire on an H-1B basis may now hire more people directly in India through their global capability centres,” he said.

“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,” Rajan added.

He said that Indian firms are undertaking more backend work from India while hiring locally from the US for customer-service oriented jobs.

The former RBI governor expressed more concerns over the 50% tariffs imposed on India by the US, citing "trade barriers" as well as accusing India of funding Russia's war on Ukraine by buying oil from them as reasons.

“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,” Rajan said.