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Global trade is in a turbulent era, with the US imposing tariffs, sanctions and tighter immigration rules, while countries are implementing stricter data privacy laws. These measures are reshaping global business dynamics and redefining how companies compete.

For India's $250 bn IT sector - where 55-60% of revenue comes from exports - the stakes are high. The US and Europe account for over three-quarters of this demand, making the industry vulnerable to restrictions on talent mobility, offshoring and compliance. Even with tariff impacts and inflationary pressures, US companies have managed, thanks to their offshoring strategies. But this approach now faces significant headwinds.

One of the most consequential developments is the proposed Halting International Relocation of Employment (HIRE) Act in the US Senate. The bill aims to promote local job creation by discouraging outsourcing. It proposes a 25% excise tax on payments to foreign entities for services benefiting US consumers, and would deny tax deductions for these transactions.

If enacted, the effective cost of offshored IT services could rise by nearly 60% after factoring in the excise tax and disallowance of deductions for federal and state corporate taxes. Additional hardware tariffs, such as a 50% duty on imports worth $50 bn, would further stretch tech budgets and alter economics of offshoring for American enterprises.

Adding to this uncertainty is the scope of the HIRE Act:

• The definition of 'foreign person' could potentially include wages paid to non-immigrants in the US as well as foreign subsidiaries of US corporations, which could impact GCCs set up in India for inter-company transfers.

• Anti-abuse provisions may also block common workarounds, such as setting up US subsidiaries, creating unpredictability for multinational contract negotiations. Recent US immigration changes, including the removal of streamlined visa renewal processes, stricter interview requirements and high-profile enforcement actions, signal a tougher stance on talent mobility. For Indian IT firms that rely on blended delivery models combining onshore and offshore teams, these developments introduce operational uncertainty and cost pressures.

Based on past trends, the legislative path for the HIRE Act may be lengthy, as similar proposals like the No Tax Breaks for Outsourcing Act and the End Outsourcing Act were stalled in committee stages due to strong business lobbying. However, today's protectionist climate and job-reshoring sentiment make the risk more credible.

US companies are expected to lobby aggressively against the HIRE Act, citing its impact on competitiveness and costs. At the same time, many will revisit sourcing strategies, conducting cost-benefit analyses to weigh onsite hiring against global delivery. Clients may push for tax-inclusive pricing, negotiate fee reductions or demand greater use of local talent. There could also be an accelerated shift toward automation and AI, along with vendor consolidation to strengthen compliance and resilience.

Despite these challenges, offshoring to India will continue to provide a competitive advantage to US companies due to the unique combination of a mature tech ecosystem, proven delivery resilience and a deep pool of highly skilled STEM talent - especially as the domestic supply of talent in the US continues to fall short. Even after factoring in the impact proposed under the US HIRE Act, offshoring to Indian IT companies may still be 20-40% more cost-efficient than US onshore options.

However, to avoid business disruptions, Indian IT companies may need to plan initiatives:

• In the short term, priority should be to engage closely with clients, reinforce confidence in delivery continuity, and assess contractual exposure to potential tax changes.

• Medium-term priorities include productisation of services, accelerating AI adoption and offering outcome-based pricing.

• Long-term strategies should focus on diversifying markets beyond the US and Europe while increasing localisation through near-shore and onshore presence.

While the HIRE Act may stir debate, inject uncertainty among clients and prompt reassessments of global delivery strategies, its passage remains unlikely, since it runs counter to the economic interests of US enterprises that depend on cost-effective global talent to stay competitive and innovate at scale. Hopefully, economic logic will prevail.