A recent call on X, posted on September 1, to impose levies on all outsourcing and foreign remote work—and a repost by US president Donald Trump’s senior trade adviser, Peter Navarro—has reignited worries of a looming digital tariff fight. Proponents argue countries should pay to deliver services to the US, much like they do for goods, with rates calibrated by industry and origin.
This renewed push for a tariff on outsourcing and foreign remote workers has rattled India’s $250 billion IT sector and the country’s thriving global capability centre (GCC) ecosystem. Experts warn that such a move could erode the cost arbitrage advantage that has long made India the world’s back office, forcing firms to rethink their operating models.
“An export tariff on IT services will definitely reduce the cost arbitrage that all services companies have been able to use as one of the pillars of their model,” Neeti Sharma, CEO of TeamLease Digital, told AIM.
“Today, most American companies partnering with the Indian IT services industry are doing so not just for lower costs, but also because of the large talent pool that brings high value. However, the additional costs would need a rethink on the model that companies work on in the long run.”
Mid-market GCCs are at Greater Risk
Smaller and mid-market GCCs, which typically run on tighter budgets, are expected to be hit harder than their larger peers. “Most mid-market GCCs do operate on lower margins and also work on shorter projects concentrated in a few industry segments. Hence, they would get hit harder. Larger GCCs usually have bigger margins, diversified global setups and the ability to absorb some extra costs,” Sharma added.
Roop Kaistha, regional MD of Asia-Pacific at AMS, agreed. “While there will be a reduction in the cost arbitrage, given the huge difference of 50–75%, there will still be positive but thinner arbitrage,” he told AIM.
Kaistha cautioned that mid-market GCCs “lack the scale, balance sheet and pricing power that larger enterprises use to absorb or reroute tariff costs, and many are newer builds with thinner buffers and higher per-unit overheads.”
Alouk Kumar, CEO at Inductus Group, called the move politically feasible but economically flawed. “From an economic perspective, its implementation would be highly inefficient, risky and complex. If enacted, it would result in increased costs for US businesses, disrupt global supply chains and compel Indian IT firms to adopt novel business strategies,” he said during an interaction.
He stressed that such tariffs would hurt US firms as much as Indian exporters. “While such a move is intended to be protectionist, we trust it would be met with significant opposition from American companies themselves, as it directly undermines their reliance on the established, high-quality talent pools that have enabled their own digital transformation.”
Kumar warned that the impact on mid-sized US firms, particularly in manufacturing, healthcare, logistics and retail, could be severe. “Without appropriate mitigation measures, the tariff may inadvertently exacerbate the competitiveness gap between America’s dominant corporate giants and its mid-market core,” he noted.
Pivoting to Innovation
The tariff chatter has also reopened the question of India’s value proposition.
According to AI and digital strategy leader Sunil Padmanabh’s estimation, “a 25% outsourcing tax could cut GCC savings for US firms from ~50% to barely 15–20%.”
He identified BFSI, retail/e-commerce and tech support/back-office GCCs as the most exposed, with healthcare operations and marketing analytics moderately affected, while engineering and R&D centres face the least risk.
But Padmanabh said a wholesale rollback of offshoring is unlikely. “With 76% of US employers short of digital talent, companies cannot simply move all the work back to the US,” he said. Instead, he argued, “GCCs must move from cost arbitrage to automation, R&D and global platforms to stay valuable.”
Kaistha echoed this, saying Indian IT firms should “shift to value-based pricing, insert change in law clauses, and prioritise high-value processes instead of cost arbitrage alone.”
The consensus among experts is that tariffs, if introduced, would accelerate the Indian IT industry’s ongoing transition from being the low-cost delivery arm of US corporations towards becoming innovation-led, end-to-end partners.
As Kumar summed it up, “The conversation has shifted from ‘cost arbitrage’ to ‘innovation arbitrage,’ and those who lead this transition will define the next chapter of global technology services.”
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