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While the risks to the Indian services sector from the US government’s decision to levy a one-time fee of $100,000 on new H-1B visa applicants “appear manageable”, they are there and need to be closely monitored, the Ministry of Finance said on Friday. It added that states need to implement “targeted deregulation” to reinforce the economy’s growth prospects.
“The decision by the US government to impose a fee on new H-1B visa-seekers is a reminder of the risks of trade uncertainties affecting the hitherto unaffected services sector. For now, the risks appear manageable, but they are there,” the finance ministry said in its Monthly Economic Review report for August.
Indians are the biggest beneficiaries of the H-1B visa, of which 65,000 can be issued in a year with a further 20,000 petitions permitted for those who have studied in the US and graduated with a Master’s or higher degree. The Trump administration’s September 19 decision to impose the fee could force reassessment of strategies, with American companies such as Amazon, Microsoft, Meta, Apple, and Google and several Indian IT services companies such as Infosys, Tata Consultancy Services, Wipro, and Tech Mahindra hiring thousands of workers through the H-1B visa last year.
As opposed to a deficit in its merchandise trade, India has a significant services trade surplus with the rest of the world. While the country had a merchandise trade deficit of $26.49 billion in August, provisional data put the services trade surplus for the month at $16.61 billion.
The finance ministry’s monthly report also called on state governments to complement the Centre’s reform initiative and “actively pursue cooperative federalism by implementing targeted deregulation at the state level”. This, the report said, will help “reinforce” India’s growth trajectory and support sustained economic development.
The latest call for deregulation comes after the Economic Survey for 2024-25, presented in February, pitched deregulation as a key theme to drive future growth. “Without deregulation, other policy initiatives will not deliver on their desired goals,” the Survey had said, listing key areas such as removing prohibitions on women from working in factory processes, rationalising parking norms to reduce land loss in industrial and commercial plots, reducing electricity tariff markup for industrial users, and increasing the role of private parties in building approvals and inspections, among others.
Commenting on the central government’s own recent reform push – which lowered Goods and Services Tax (GST) rates effective from September 22 and reduced the tax slabs to just two from four, among other administrative measures – the finance ministry report said they should boost the economy’s resilience against external trade-related shocks.
“The reforms, alongside the RBI’s rate cuts, income tax rebates, and the wider context of deregulation and easing inflation, create favourable conditions for an economic uptick. The GST rationalisation is a major push towards advancing India’s climate goals by making renewable energy, waste management, biodegradable products, and green mobility more affordable and within reach,” the ministry added.
With India’s GDP growth clocking a higher-than-expected rate of 7.8 per cent in April-June, the finance ministry made note of the fact that some analysts had raised their forecasts for the year, with the median estimate of the same being 6.6 per cent.
“Some analysts have even gone beyond the upper range of the Ministry of Finance’s projection of 6.3-6.8 per cent to suggest around 6.9 per cent growth for FY26,” the report added.
On the price front, the finance ministry expects inflation to remain “well under control”, with a good monsoon aiding kharif crop acreage sown and replenishing reservoir levels, which in turn bodes well for the upcoming rabi crop. On the whole, India’s economic outlook remains “broadly optimistic despite a turbulent international environment”.
