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Kolkata: If Donald Trump's retaliatory 50% tariffs weren't enough, here is a Bill from a Republican senator that can put the Indian information technology sector, one of the most significant sectors of the Indian industrial sector, in serious trouble. Titled “The Halting International Relocation of Employment Act”, or the HIRE Act in short, it aims at slapping a 25% punitive tax on US companies which outsource IT jobs to overseas companies.
The piece of proposed legislation has been placed after Peter Navarro, Donald Trump's counsellor for trade and manufacturing, emphasised in a social media post that tariffs should be levied on all outsourcing activities and remote work. Analysts apprehend, if the Bill turns into an Act, the huge cost advantage that Indian IT companies offer to their US-based clients could be lost significantly.
The lion's share of contracts of IT companies flow from clients in the US despite Indian firms trying to look elsewhere for markets such as Japan, Australia, North European countries and West Asia. NASSCOM says IT services, including hardware, from India fetch $224 billion in exports and the US accounts for as much as 62% of this amount.
Analysts have told the media that the cumulative impact of excise, federal corporate tax and state-specific taxes could raise the cost of offshored services up to 60%, which could become a deterrent to the cots effective service of the Indian IT sector. At another level, it would drastically reduce teams to be sent from India and raise local hiring, which seems to be the ulterior motive of the proposed legislation.
Reports have indicated that there is another area of danger -- the global capability centres or GCCs, which India is developing to lure a lot of value-added service from tech-based MNCs into this country. GCCs are wholly-owned by MNCs and function as offshore subsidiaries. They deliver specialised services and drive innovation and cost efficiencies. The GCCs were founded on the platform of cost reduction and GCCs have been promoted by India to attract MNCs to operate in domains such as IT, R&D, finance and data analytics.
The only ray of hope is that GCCs don’t operate on vendor client models and are owned by the companies themselves. But if the US policymakers are keen to relocate jobs to American soil, these could also be an obstacle to the smooth functioning of GCCs.
