US HIRE Bill adds more pain to India’s beleaguered IT sector
Even mega deals today often amount to vendor swaps — while clients trim costs, Indian firms' margins get squeezed; the proposed visa law could be the final blow
India’s $250-billion IT services industry is already navigating a slow-motion squeeze. Growth that once surged into double digits in 2021–22 has since fizzled. Infosys is crawling at barely 1-3 per cent, while Wipro and Tech Mahindra are shrinking outright. Margins are eroding, even as companies trumpet billions in new contracts.
And now, a fresh uncertainty looms from across the Atlantic: the US HIRE Bill, a legislative proposal that could make it tougher for Indian firms to deploy talent onsite in the US, their single largest market.
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The bill’s details are still being thrashed out in Washington, but its direction is clear, restricting reliance on H-1B visas and imposing stiffer requirements on outsourcing-heavy models.
What is the US HIRE Bill, 2025?
It's a proposed law aiming to curb outsourcing by imposing a 25% tax on companies that hire foreign workers for services benefiting American consumers. The revenue would fund domestic workforce programmes, and the Bill could significantly impact countries like India that rely on US outsourcing.
For an industry where North America accounts for more than half of revenues for most top players (Infosys: 56.5 per cent, TCS: 48.7 per cent in June 2025), the implications are unsettling.
Margins under siege
The HIRE Bill lands at a time when margins are already under strain. Kotak Institutional Equities says EBIT margins — a measure of a company’s operating profitability, showing earnings before interest and taxes as a percentage of revenue — declined year-on-year for the top three players, with "profitability pressures visible across the board."
The report warned that after nearly three years of subdued demand, levers such as wage deferrals and subcontractor cuts "appear largely exhausted."
Large cost take-out deals, which are essentially contracts designed to save money for clients, have become the dominant growth engine, but they dilute industry profitability. Kotak observed that while deal total contract values (TCVs) look robust, "not all are net new—some involve replacing one vendor with another. In such cases, the client is the net beneficiary, not the industry."
Just a swap
So industry insiders say such announcements of $2-4 billion deals look great on the outside. "But all we seem to be doing is swapping places with another vendor. The pie isn't growing, and predatory pricing and rampant undercutting are underway," a vice president with one of the big five IT firms in India told The Federal.
"The client saves money, we squeeze margins, and the industry as a whole is running faster just to stay in the same place," he adds.
TCS, for instance, signed $12 billion worth of contracts last year; Infosys nearly $4 billion. Yet much of this is vendor replacement rather than expansion. It flatters the order book but does little to grow demand.
The captive threat
Adding to IT companies' woes is the fact that multinationals are also quietly taking work back in-house. Global Capability Centres (GCCs), once a niche model, are now mainstream. HSBC has been expanding its technology centres, while Citi was reported earlier this year to be increasing insourcing plans.
Kotak warned that "new GCC opportunity may not be large enough to meaningfully contribute to revenue growth for the industry" and will likely cannibalise existing vendor contracts.
"The dynamic is simple: every captive that scales in India chips away at the outsourcing pie. Even when a new GCC is set up, the opportunity cost is high; the client could have given the business to an IT services vendor instead," a senior executive at the IT firm told The Federal.
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Trade and tariff uncertainties
Layered on top of this are macro risks from the US administration itself. Kotak’s analysts flagged "uncertainty over the Trump administration’s tariff regime with considerable impact on retail, logistics and manufacturing verticals". Healthcare, too, faces turbulence from changes to Medicaid funding and drug pricing rules.
The buzzword is AI, and industry leaders see it as a lifeline. But here too, the picture is nuanced. AI could be “a net headwind for a few years” as clients prioritise monetising productivity gains, cutting costs in software development and BPO, before investing in new AI-led use cases.
Companies have tried to cushion the blow by offering temporary staffing to GCCs, but Kotak cautions that this “might not be a very interesting opportunity considering an inferior margin profile.” In other words, it keeps people busy but doesn’t solve the profitability crunch.
Also Read: Tariffs, visa tensions amidst weak demand trigger perfect storm for Indian IT stocks
AI: Hope or headwind?
If the negatives are stacking up, i.e. the US HIRE Bill, tariff shocks, captive cannibalisation, what about the positives? The buzzword is AI, and industry leaders see it as a lifeline.
But here too, the picture is nuanced. Kotak believes AI will be “a net headwind for a few years” as clients prioritise monetising productivity gains, cutting costs in software development and BPO, before investing in new AI-led use cases.
"Baking in AI savings is already becoming table stakes in deal bids, creating a delicate balancing act: underestimate and risk losing the contract; overestimate and struggle to deliver," says the CEO of an AI startup, which is a sub-contractor, handling only the AI tool-building and integration part for the clients of an IT firm.
A Nasscom–McKinsey report released recently painted a more hopeful long-term horizon. It projects that while overall revenue expansion may remain muted until 2027–30, India’s tech sector could still clock 5–7% growth over five years, with data and AI segments sustaining 12–15 per cent annual growth.
“Enterprise tech spending will continue to be resilient, with budgets increasingly directed toward AI to unlock value creation,” the report noted. It also forecast a $300–500 billion new spend pool from “Agentic AI,” where intelligent agents could reshape workflows.
Convergence of AI and humans
Rajesh Nambiar, president of Nasscom, said, "The future of technology services will not be defined by choosing between human expertise and AI-driven automation, but by the powerful convergence of the two."
However, Noshir Kaka, senior partner at McKinsey, was more blunt. "The global technology services market is entering a phase of both promise and pressure. Agentic AI is opening up significant new growth arenas… However, it needs a reset of the industry operating model to both counter near term headwinds and build for the AI era."
