India’s IT Sector Faces Uncertainty Over Proposed U.S. Outsourcing Tax

Economic

Summary:

India's IT sector is bracing for uncertainty as U.S. lawmakers debate a proposed 25% tax on companies that outsource jobs to foreign workers, including Indian firms...

Proposed U.S. Tax Bill Puts India’s IT Sector in Limbo

India's $283 billion information technology sector, which has long thrived by providing outsourcing services to U.S. companies, now faces a period of uncertainty. This comes after U.S. Republican Senator Bernie Moreno introduced the HIRE Act, proposing a 25% tax on American firms that hire foreign workers, particularly those in India's IT sector. The tax is intended to incentivize U.S. companies to hire American workers instead, using the revenue for workforce development programs.

The bill has raised significant concern in India, as many of the country's top IT firms, including Tata Consultancy Services, Infosys, and Wipro, rely heavily on contracts with U.S. companies. While the proposal may not pass as written, it has sparked fears of long-term shifts in the outsourcing market, with Indian companies already struggling with weak growth in their main U.S. market.

Impact of the HIRE Act on OutsourcingThe HIRE Act could significantly alter the economics of outsourcing by raising the cost of international service contracts. Jignesh Thakkar, head of compliance at EY India, highlighted that the combined federal, state, and local taxes on outsourced payments could reach up to 60%. This would make it more expensive for U.S. firms to hire foreign labor, potentially undermining the cost advantages that have made outsourcing attractive.

Despite the concerns, the bill has gained some support, with White House trade adviser Peter Navarro advocating for the inclusion of service tariffs. However, industry experts caution that such sweeping changes could trigger backlash from U.S. companies that depend on outsourcing to maintain competitive pricing. These companies could challenge the bill through litigation if it were enacted.

Market Reaction and Lobbying Efforts

In response to the uncertainty, U.S. clients are already slowing down contract renewals and negotiations, demanding more flexibility and revised pricing terms. The potential delay in deals and extended contract negotiations could further disrupt the outsourcing business.

Companies are likely to push back hard against the bill, with strong lobbying efforts expected, as well as legal challenges if it passes. Experts suggest that the bill, if passed, may face a diluted version or delayed enforcement due to the practical challenges of enforcing its provisions.

Global Capability Centers at Risk

The proposed tax could also impact U.S. firms' global capability centers (GCCs), which have evolved from cost-cutting back offices to high-value hubs supporting various operations, from finance to research and development. While current operations may not be immediately impacted, new setups or expansions could be hindered due to the increased costs of outsourcing.

Bharath Reddy, a partner at CAM, noted that although the proposed tax would reduce the cost arbitrage advantage, the persistent shortage of skilled labor in the U.S. would still drive the need for outsourcing, especially in areas like IT.

The proposed U.S. outsourcing tax creates significant uncertainty for India’s IT sector, which has long been a key player in the global outsourcing market. Although the bill may face hurdles in passing, it signals a potential shift in how outsourcing relationships are structured. India’s IT firms will need to navigate this uncertainty carefully, as legal battles, political pressures, and changes in market dynamics could reshape the future of the industry.

Source: Reuters

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Economic

Commodity

Oil Prices Stabilize Amid Geopolitical Tensions

Oil prices steadied on Thursday following a brief spike earlier in the week. Brent crude remained above $67 per barrel, while West Texas Intermediate (WTI) hovered near $63. This price action came after President Trump raised concerns over Russia’s violation of Polish airspace, leading to a temporary surge in oil futures as investors adjusted their positions. However, with the market still processing geopolitical developments, oil prices have stabilized for now.

Trump’s social media post on Russia’s incursions into Polish airspace fueled market volatility. He also made remarks to European Union officials about imposing new tariffs on India and China two of the largest buyers of Russian oil in an effort to pressure Moscow into negotiating with Ukraine. Although Trump has only targeted India so far, his comments have heightened concerns over potential disruptions to oil supply. The European Union also reinforced its position on Russia, stating it would ramp up sanctions significantly, describing the violation of Polish airspace as a “serious escalation.”

Geopolitical Risks and Market Volatility

Experts predict that the situation with Russia may lead to further volatility. Mukesh Sahdev, head of commodity markets at Rystad Energy, suggested that market participants should brace for more unpredictable moves as Western countries harden their stance against Moscow. This geopolitical uncertainty is intensifying risks in the oil market, which is already contending with bearish fundamentals.

Despite the geopolitical risks, oil remains under pressure due to an anticipated global glut by the end of 2025. U.S. crude inventories increased by 3.9 million barrels last week, though they remain below the five-year seasonal average. Citigroup analysts highlighted that the market is in a “tug-of-war” between increasing bearish fundamentals and heightened geopolitical risks, reaffirming their forecast for Brent crude to dip into the low $60s per barrel by the end of the year.

Oil markets are facing a complex mix of geopolitical uncertainty and supply-demand dynamics. While geopolitical tensions, particularly involving Russia, add volatility, the fundamental oversupply concerns are expected to weigh on prices as the year progresses. Traders and analysts will continue to monitor Trump’s moves and global market conditions for further direction.

Source: Bloomberg

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Political

A team from the US Defense Department and Boeing Co. executives are expected to visit India next week to negotiate the sale of about $4 billion of surveillance aircraft, officials in New Delhi said, as the two countries seek to revive trade talks.

India will discuss the purchase of six P-8I naval patrol aircraft, the people said, asking not to be identified because the discussions are private. The procurement deal was cleared in 2019 but negotiations had subsequently stalled, they said.

New Delhi had purchased eight P-8Is in a $2.2 billion deal in 2009 and another four more a decade later. The fleet is based out of the southern Indian state of Tamil Nadu and is used extensively to patrol the Indian Ocean region and maritime choke points.

India's Ministry of External Affairs and Ministry of Defence didn't respond to an email seeking further information. The US Embassy in India didn't immediately respond to a request for comment. The Defense Department also didn't immediately respond to a request sent outside of usual business hours.

President Donald Trump said Tuesday the US is resuming trade negotiations with India and he'd speak with Prime Minister Narendra Modi in coming weeks, signaling a thaw after weeks of tensions over tariffs and India's ties with Russia. Trump slapped 50% tariffs on Indian exports to the US — half of which was a penalty for New Delhi's purchases of oil from Russia, which the US president says is helping fund President Vladimir Putin's war in Ukraine.

The US team's expected visit next week shows the two sides continue to engage each other on critical issues such as defense despite the fallout over trade. The purchases could also help reduce the US's trade deficit with India, one of Trump's key objectives.

India, the world's second biggest importer of weapons, is buying less and less of its defense from Russia. Only 36% of India's arms imports came from Russia last year, down from 76% in 2009, according to a March report from the Stockholm International Peace Research Institute, an independent think tank that studies conflict, weapon sales and disarmament.

At the same time, India has moved closer into the US defense orbit, inking contracts worth nearly $20 billion since 2018, according to a report from the US Congressional Research Service. India green-lit a deal of more than $3 billion for 31 long-range drones made by US defense giant General Atomics last October.

Source: Bloomberg Europe

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Economic

BOJ’s Strategy to Unwind Stimulus and Sell ETFs

The Bank of Japan (BOJ) is preparing to enter the final phase of Governor Kazuo Ueda’s plan to scale back the monetary stimulus program initiated over a decade ago. The BOJ’s strategy centers on selling its 37 trillion yen ($251 billion) worth of ETFs, which were accumulated during the 13 years of asset purchases that started in 2010. This initiative is part of the BOJ’s effort to shrink its balance sheet, which currently stands at 125% of Japan's GDP among the largest in the world.

Deputy Governor Ryozo Himino recently indicated that the BOJ is actively considering how to deal with its ETF and real estate trust fund holdings, signaling that the move may be nearing. However, the exact timing of the sales remains unclear, with sources noting that the BOJ could proceed gradually, selling ETFs in small increments to avoid causing market disruption or incurring losses.

Challenges and Timing Concerns

The BOJ’s previous experience in selling stocks purchased during the 2002-2010 period, aimed at helping banks cope with equity losses, suggests the central bank will adopt a similar approach to unloading ETFs. However, timing is a critical issue. The BOJ is unlikely to make a decision during its September 18-19 policy meeting, although it may address the topic during the post-meeting briefing.

A key complication has been the political uncertainty in Japan, following the resignation of Prime Minister Shigeru Ishiba. The leadership race, set to conclude on October 4, has left the country without a clear political direction. This has added risk to the BOJ’s asset sales, as the central bank may lack clarity on the new administration’s economic policies.

Market Impact and Political Sensitivity

The BOJ's asset sales could have a significant impact on Japan's financial markets, especially given that the Nikkei index has reached record highs. Politicians, particularly from the opposition, have suggested using the dividends from the BOJ’s ETF holdings to fund government spending initiatives, such as childcare programs. This has made the timing of asset sales politically sensitive, with the risk of drawing criticism if the sales are seen as mishandled or ill-timed.

While the BOJ's current monetary policy is in transition, with the stimulus unwinding in phases, it is clear that the central bank needs to reduce its vast ETF holdings eventually. However, careful consideration of timing and political context is essential to ensure a smooth process.

The Bank of Japan is poised to begin selling its ETF holdings as part of its broader effort to unwind years of aggressive monetary stimulus. However, political uncertainty and the potential market impact of such a move mean that the central bank will proceed with caution. The final decision on the timing and method of these sales will likely depend on the political landscape and broader economic conditions in the coming months.

Source: Reuters

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Economic

Inflation Pressures Mount as Tariffs Impact Prices

The U.S. consumer price index (CPI) is expected to rise by 0.3% in August, following a 0.2% increase in July, according to economists. This uptick is primarily driven by higher prices at the gas pump and supermarket shelves, with tariffs on imported goods contributing to the price surge. While the impact of tariffs has been gradual, economists predict that businesses are running out of pre-tariff inventory and will soon begin passing on higher costs to consumers. As a result, industries like coffee and beef are experiencing the most significant price hikes in years, fueled by tariffs and past supply disruptions.

The slow response of consumer prices to tariffs so far is attributed to businesses selling goods imported before the tariffs were imposed. However, with inventories dwindling, businesses will likely begin raising prices on goods that have incurred tariffs. This will likely affect sectors such as apparel, furniture, and other consumer goods. The core CPI, which excludes volatile food and energy prices, is anticipated to rise by 0.3% for the second consecutive month, reflecting these pressures.

Economic Forecasts and Federal Reserve Rate Cuts

Economists predict that the year-on-year CPI increase for August will be 2.9%, the highest annual gain in seven months. However, this rise is not expected to disrupt the Federal Reserve's rate cut plans. Despite the uptick in inflation, the Fed is still expected to proceed with a quarter-point interest rate reduction at its meeting next Wednesday, with a focus on supporting economic growth and offsetting the potential negative effects of tariffs.

The upcoming months will be crucial for assessing the full impact of tariffs on inflation. If consumer demand remains weak, businesses may struggle to pass on the increased costs, potentially leading to more muted price increases. This would signal that inflation is being constrained by soft demand. Conversely, if businesses raise prices more aggressively, it could point to a more significant tariff-related inflationary impact. Regardless, analysts expect that weak demand may still lead to further rate cuts from the Fed.

As U.S. inflation ticks up, driven by tariffs and energy prices, the Federal Reserve is likely to remain focused on its broader economic goals, with rate cuts expected to continue despite inflation concerns. The months ahead will reveal whether businesses can successfully pass on higher costs to consumers, with demand trends playing a key role in shaping inflationary pressures.

Source: Reuters

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Economic

BOJ’s Rate Hike Likely in Q4

According to a Reuters poll conducted from September 2 to 9, a majority of economists now expect the Bank of Japan (BOJ) to raise its key interest rate by at least 25 basis points in the fourth quarter of 2025. While two-thirds of economists held this view a month ago, the latest poll showed a slight decrease in this expectation. Despite markets anticipating U.S. rate cuts next week, 93% of analysts indicated that this would not delay the BOJ's move toward slightly tighter monetary conditions.

The poll found that 55% of respondents, or 36 out of 66 economists, forecast the BOJ will raise its benchmark rate from 0.50% to 0.75% by the end of the year. This is a decrease from 63% in the previous month’s poll but in line with the 54% prediction in July. While most analysts expect no change at the BOJ’s September 18-19 policy meeting, a rate hike is considered more likely in the upcoming quarter.

Factors Driving Potential Rate Hike

Economists believe the BOJ is likely to tighten its monetary stance due to the risks posed by the accelerating depreciation of the yen and the potential for asset bubbles. Atsushi Takeda, Chief Economist at Itochu Economic Research Institute, noted that the BOJ might act to address these issues, particularly if the impact of U.S. President Donald Trump’s tariffs on trade data and Japan's "tankan" survey becomes clearer.

BOJ Deputy Governor Ryozo Himino has emphasized that, while the central bank should continue raising interest rates, global economic uncertainty remains a concern. Additionally, the likelihood of further rate hikes could be influenced by Japan’s upcoming political transition. If fiscal dove Sanae Takaichi becomes the next Prime Minister, the chances of additional rate hikes may diminish significantly.

In terms of inflation, more than three-quarters of economists did not expect next year’s labor-management negotiations to result in wage increases exceeding the 5.25% rise seen this year. Economists anticipate that growth will remain around 5%, which should allow the BOJ to maintain its "virtuous cycle" of wages and prices.

Despite global uncertainties and U.S. tariff policies impacting Japanese corporate profits, economists are largely forecasting a rate hike from the BOJ in Q4, as the central bank responds to domestic economic risks, including the yen’s depreciation and potential asset inflation.

Source: Reuters

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Commodity

Economic

Rapid Growth in Coffee Trade

According to the Khmer Times, in the first seven months of 2025, Vietnam exported nearly 1.1 million tons of coffee, valued at over $6 billion, marking an 8% increase in volume and a 66% increase in value from the same period last year. Remarkably, the export value during this period already surpassed Vietnam’s total coffee exports to Cambodia in 2024, which stood at $5.5 billion.

Vietnamese Customs reported that coffee exports to Cambodia in July alone reached 713 tons, valued at $2.7 million, representing a 406% increase in volume and a 460% increase in value year-on-year. From January to July, total exports hit 2,231 tons, worth $10 million, up 78% in volume and 114% in value compared to last year.

Drivers of Growth

Businesses attribute this surge to the steady expansion of Vietnam–Cambodia trade, which exceeded $10 billion in 2024 and surpassed $7 billion in the first seven months of 2025. Vietnamese products are favored in Cambodia for their quality and competitive pricing. Recent supply disruptions in Cambodia have further opened opportunities for Vietnam’s coffee sector to strengthen its market presence. Shared history and the 1,158 km border between the two nations also facilitate trade flows.

During a meeting between Vietnamese Prime Minister Phạm Minh Chính and Cambodian Prime Minister Hun Manet on the sidelines of the Shanghai Cooperation Organization Summit in Tianjin on September 1, 2025, Vietnam proposed enhancing transport connectivity, simplifying border procedures, and creating favorable conditions for businesses, aiming to reach $20 billion in bilateral trade.

Vietnam’s Trade Counselor to Cambodia, Đỗ Việt Phương, emphasized that the two economies are highly complementary, with significant potential in exports and imports to achieve the $20 billion trade target set by both governments.

Business Coordination Efforts

To capitalize on this momentum, the Vietnamese Ministry of Industry and Trade and Cambodia’s Ministry of Commerce co-hosted the Vietnam–Cambodia Business Connection Conference in Phnom Penh in late August 2025. Vietnam encouraged deeper ties with local associations, distribution networks, and importers, while addressing technical barriers to ensure smoother and more balanced trade.

Nguyễn Nam Hải, President of the Vietnam Coffee – Cocoa Association (VICOFA), highlighted that from October 2024 to July 2025, Vietnam exported 1.35 million tons of coffee worth $7.5 billion, reflecting a nearly 57% increase in value despite a slight decline in volume.

Vietnam’s coffee sector is clearly leveraging both regional demand growth and strategic government initiatives to consolidate its presence in the Cambodian market.

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