Are Fees on H-1B Visas a Boon for India?

Sometimes, your biggest adversary (bane), who resorts to bullying, turns into your biggest friend (boon). The adversary in disguise who is out to help you achieve your goals.

The US has imposed a $100,000 annual fee for H-1B visas for foreign workers and a 3.5% tax on foreign remittances. This is a targeted decision. 71% of H-1B visas are held by Indian citizens, and a major portion of these visa holders send money back to India.

This decision by the US government will directly and adversely affect Indians aspiring to go to the US for a career. The brightest talents (students and professionals) have been migrating to the dreamland of the America to pursue their dreams which couldn’t find an ecosystem and environment in India. Not only this, but also the Indian government has been investing billions of dollars every year in these talents to educate and train them. This has resulted in increased costs for India. Apart from this, millions of dollars are flowing to the US for education in US universities and higher education opportunities.

GST 2.0 and the Indian Economy

GST 2.0 is a major revamp of India’s indirect taxation system with the aim of simplifying the GST regime, expanding the tax base, reducing the complexity of compliance, and stimulating consumption-driven economic growth. These reforms have largely rationalised GST slab rates by lowering the current four-tier structure (5%, 12%, 18%, and 28%) into a neater three-tier one: 5% for necessities, 18% for the general rate on most goods and services, and a new 40% slab on luxury and sin goods. This reform will be implemented from 22nd September 2025. It is expected to make the GST system more transparent, efficient and growth-oriented.

Simplification and Transparency

The proposed two-tier structure of 5% and 18% which covers most of the goods and services, while the 40% slab covers luxury and sin goods, is aimed to make the GST system simple for every stakeholder. Traders and businesses faced numerous challenges under the old regime due to overlapping and unclear rates, such as 12% versus 18% slabs or 18% versus 28%. The new regime looks simpler and neater with no confusion in compliance. It will bring down disputes, improving tax administration. It will bring down the compliance costs for businesses, particularly MSMEs.

Trump Unnecessarily Playing Victim Card

The US President Donald Trump is projecting the US as the greatest victim of India in trade in his social media post after the SCO summit 2025, which went well attended! He is trying to write a good script for a drama about his reckless foreign and trade policies gimmicks. However, the following are facts about the US trade with India and the rest of the world:

As far as the US trade deficits with its trading partners are concerned, there are some interesting and unusual facts.

US-India trade (exports and imports) was $212 billion in 2024, and a trade deficit of $41.5 billion. The US deficit with China is $270 billion, which is 128% of the total trade between the US and India. The US trade deficit with India is nearly one-fifth of the US trade deficit with China.

With the EU, this deficit is $161 billion, about four times that of the deficit with India. With other countries like Mexico, Vietnam, Taiwan, Japan, South Korea, Canada and Thailand, the US trade deficit is respectively $157 billion, $113.1 billion, $67.4 billion, $62.6 billion, $60.2 billion, 54.8 billion and $41.5 billion.

Trade Tensions, Tariffs, and the Future of Global Trade

“While world trade hit new peaks in 2024, uncertainty has increased as geo-economic tensions increase, supply chains are disrupted, and tariffs surge.” 

 

- UNCTAD, 2024

In 2025, the global trade environment is being defined by rising trade tensions and the return of tariffs as a leading economic policy weapon. As the world recovers from pandemic-related disruptions, nations are increasingly resorting to protectionism deploying national security, industrial sovereignty, and geo-economic strategy.

The New Wave of Tariffs

The governments have historically been using tariffs and non-tariff barriers as economic tools to protect their domestic industries from foreign competition or punish foreign countries. However, post-pandemic, there has been an increase in the tendency of some big economies to resort to tariffs. Global trade has been flourishing for a long time. More than sixty per cent of the global trade doesn’t attract any tariff, but the remaining trade is often subjected to very high trade tariffs and other non-tariff barriers. Agriculture, textile and dairy sectors are such areas where there are high trade barriers in the form of tariffs and non-tariff restrictions.

Impact of the US Tariff on India

India has become an important player in international trade since its integration with the global economy following liberalisation in the 1990s. According to World Bank data, India's trade-to-GDP ratio was 45% and its exports-to-GDP ratio was 21.2% in 2024. India mainly exports textiles, medicines and IT services while importing petroleum products and high-tech machinery. The USA has announced to impose 50% tariffs on Indian exports to the USA, which is a setback for the Indian economy.

Tariffs are in the alignment with mercantilist principles and aimed at protecting the domestic markets by matching the foreign trade barriers. However, according to the classical theory of trade (Ricardo), tariffs distort comparative advantage and increase consumers' costs, lowering welfare. So tariffs imposed by any country can, however, protect infant industries and balance out trade deficits. For India, an emerging economy with both mature and infant industries, the effectiveness of tariffs depends upon the extent, targeting, and tenure.

India's Protectionist Economy: A Shield in Need

Indian economy has traditionally been regarded as protectionist, with policies intended to shield local industry while exposing to healthy global competition. While some critics have argued that the approach suppresses growth and creativity, others argue that it is warranted because of the economic and social conditions in the country. The International Monetary Fund (IMF) projects India to grow at 6.4% in 2025, which clearly demonstrates the power and potential of India.

The protectionist policies have imposed a few non-tariff as well as tariff trade barriers, but not harmed the economy. Instead, India's growth story is one of incremental liberalization, with the government balancing to let in foreign investment while protecting national interest. The dairy sector is one such example, where India has not let itself be opened to foreign competition, lest it face the consequences on country-specific farmers and the rural economy.

The recent trade tensions with the United States have solidified India's protectionist stance. In the negotiations of the interim trade agreement, India did not acquiesce, rejecting proposals that accommodated American interests at the expense of Indian farmers and dairy farmers. The US had proposed allowing the entry of American dairy products, including non-vegetarian milk, which was seen as a threat to India's dairy industry. However, in the case of non-vegetarian milk, ethical considerations relating to religious sentiments is another important reason.

India Needs to be Tough with MNCs

When you are negotiating with a bully who is a narcissist, you need to confront wisely and skillfully; otherwise, the bully will keep creating ruckus for you. However, India has to tread very carefully as it has an opposition which is hell bent to down Narendra Modi at any cost. The Opposition wouldn't hesitate even if their actions would be damaging national interests because the same opposition has cheerleaders in the form of millions of supporters. However, India needs to be diplomatically strategic with multinational companies (MNCs) even if the opposition doesn't support this.

Microsoft has restricted Nayara. It cannot access its data. Whatever has happened in this case needs urgent attention from the government. India needs to take a tough stand against such MNCs which go against the interests of the Indian economy. The Nayara case is enough to show a tough face to Microsoft India. It must be made very clear to Microsoft India that it is registered in India and that it has to protect Indian interests first than to serve the American interests. The same message must be conveyed to other companies also.

Will India Use these Tariffs as an Opportunity?

Donald Trump has unilaterally imposed a tariff of 25% plus a penalty on Indian exports, citing its trade with Russia. While giving concessions to China, even though Chinese trade with Russia is far higher than that of India. Not only this, but the USA is also buying many critical items from Russia. In 2024, the US had a trade of $3.5 billion with Russia, and China's trade with Russia was about $240 billion in the same year. However, in the meantime, India and the USA are negotiating an interim trade deal, and this announcement has come amidst a series of negotiations!

The recent tariff imposition by Donald Trump on Indian exports seems like a strategic move rather than an abrupt decision. There are a few reasons which are forcing the USA to take such steps.:

Trump's Annoucements May be a Boon for India

Donald Trump has unilaterally imposed a tariff of 25% plus a penalty on India for trading with Russia and China despite the fact that the USA is also buying from Russia as well as China. However, India and the USA are negotiating an interim trade deal and this announcement has come amidst the series negotiations!

One may wonder what could be the possible reasons? Is it an abrupt announcement by Trump? Or a well thought strategy of the Trump Administration?

There are a few reasons which are forcing the USA to take such steps. First, India has taken a very tough stand on the issue of agriculture, dairy and some metals and is not ready to give any space to any country in these categories and the USA is desperately looking for new markets for its agriculture and dairy products. Second, the US realizes very well that the innings of the US as the most powerful economy in the world is going to be over soon in a decade and the export business of dollars wouldn’t continue unchallenged for long. Not only BRICS but many other countries are also looking for alternatives to the US dollar.

The Rise and Fall of the Bretton Woods System

Both the World Wars proved to be very beneficial for the United States and particularly, the Second World War. In the First World War, the US made huge fortunes through loans and arms sales to Allied Nations. It amassed huge reserve of gold and resulting in the USA becoming a creditor nation. The Second World War transformed the USA into a superpower of the world, which was later challenged by the Union of Soviet Socialist Republics (USSR or today's Russia). The WWII boosted the US industries at a time when the whole Europe and Japan was devastated. By 1945, the US held 70% of world gold reserve. The Bretton Woods System put the foundation of an economic and financial architecture in the world, which transformed the USA into a formidable economic force which none could ignore and the US currency, US dollar (USD) global reserve currency.