When Cost Advantage Fades: Reflections on the HIRE Act, Layoffs and the Moral Work of Reinvention
I wake up these days with a particular unease that is both professional and existential. For three decades India’s IT industry has been a moral story of sorts — opportunity delivered at scale, careers transformed, new middle classes created. That story rested on a simple, powerful economic truth: cost arbitrage plus skilled labour would buy customers’ trust and contracts. Today that arithmetic is being tested in ways that are structural, political and unpredictable.
The immediate trigger is familiar: the HIRE Act and its proposed 25% levy on outsourcing. Even if the bill in its current form is unlikely to survive as-is, the mere existence of such proposals changes incentives and expectations. Clients pause, contracts get renegotiated, and CFOs start to ask whether the calculus that has guided decisions for decades still holds. The atmosphere of caution is already visible in reporting: India’s IT sector is uneasy as the U.S. debates an outsourcing tax that could erode the very cost advantage that has supported much of our growth India's IT sector nervous as US proposes outsourcing tax and Caught in the HIRE Act, Indian IT may lose its cost advantage.
At the same time, the global landscape is bleeding uncertainty: mass layoffs across industries — from pharma to biotech to tech — have become part of the new normal, signaling a broader reset in corporates’ appetite for discretionary spend and headcount BioSpace Layoff Tracker. When demand softens for discretionary tech transformation, the first budget line companies revisit is often offshore services and new engagements.
I’ve thought about three linked realities this produces:
A political economy in which the client country will weaponize taxation and procurement rules to protect jobs. The HIRE Act is political theatre and policy signalling rolled into one; its effect will be to force buyers to internal debates about onshore jobs, compliance risk and reputational headlines.
A talent reality where the U.S. — like other advanced economies — is trying to address structural skills gaps. That tension pushes employers to promise more local jobs or at least to obscure their offshore sourcing in favour of hybrid delivery.
A technological reality where automation, AI and platformization can either substitute or augment large bands of human labour. The winners will be those who convert labour-led arbitrage into asset-led differentiation.
Policy changes rarely arrive cleanly. USCIS itself is already documenting how U.S. legislative changes can ripple through immigration, employment authorization and fee structures — a reminder that immigration and trade conversations are tightly coupled with sourcing strategies Temporary Protected Status | USCIS. In practice this means that even administrative moves or fee changes compound the commercial uncertainty IT firms face.
So what do I keep returning to — emotionally and strategically? Four hard lessons and one philosophical pitch.
Four hard lessons
Accelerate the move up the value chain. Cost is a brittle moat. Systems, IP, domain depth and outcome guarantees are durable. The companies I respect are the ones who charge for outcomes not bodies.
Invest in automation and AI as compounders, not as headcount-reduction theater. Thoughtful automation raises the bar: fewer people doing higher-skill, higher-value work protects margins and client relationships. The recent momentum in AI-enabled hiring platforms and automation tools is not a coincidence; it is the market reallocating.
Build resilient onshore-offshore models. Clients will demand local presence or at least local accountability. We must design delivery that preserves cost efficiency but signals commitment — onshore leadership, joint risk/reward contracts, clear transition plans.
Deepen specialization. Horizontal commoditised services will be squeezed first. Specialization in regulated industries, engineering-heavy domains, or productized IP that locks in outcomes will be the durable revenue streams.
A philosophical pitch: reinvention as duty
There is a moral dimension to what we do. Indian IT lifted millions into better lives. That obligation continues even if the commercial model shifts. Reinvention must therefore be humane — retraining, redeployment, safety nets for those displaced by automation or shifting trade rules. The scholar Muneeb Ul Lateef Banday has recorded how collective action and counter-conduct emerge within precarious labour markets; in our industry, the ability to offer collective paths forward will be both ethically necessary and commercially stabilising ‘Our union is like a sleeper cell’: Unionism as Counter Conduct Within Neoliberalism.
Finally, a quiet truth: uncertainty is also an invitation. Every tectonic shift forces re-evaluation — of pricing, of contracts, of how we measure value. We can mourn a lost era of untroubled arbitrage, or we can build architectures of work and value that are harder to tax away. I choose the latter.
If I have one practical, non‑bureaucratic ask for my peers it is this: treat the coming years as a disciplined investment cycle. Spend the margin you can preserve on productizing capabilities, on building shared platforms that reduce client switching cost, and on human capital programs that make your people more indispensable.
I am not naïve about the scale of the challenge. Political winds change, clients lobby, and legislators propose taxes that make accountants tear their hair out. But industries evolve not by hoping laws will never change, but by building models that thrive whether the tax is 0% or 25%.
If any of the threads above interest you — deeper operational playbooks for onshore-offshore contracting, examples of AI-first productization, or outlines for humane workforce transitions — I can write that next. For now, I remain watchful, pragmatic and quietly optimistic.
Selected further reading:
On the HIRE Act and the market reaction: Caught in the HIRE Act, Indian IT may lose its cost advantage and India's IT sector nervous as US proposes outsourcing tax.
On the macro layoffs and demand softness: BioSpace Layoff Tracker.
On linked immigration and fee policy shifts: Temporary Protected Status | USCIS.
On the social dimension of labour resistance and collective responses: ‘Our union is like a sleeper cell’: Unionism as Counter Conduct Within Neoliberalism.
Regards,
Hemen Parekh