A proposed 5% remittance tax on foreign workers in the United States, championed by former US President Donald Trump as part of “The One Big Beautiful Bill,” could have devastating economic consequences for India, according to a report by the Global Trade Research Initiative (GTRI).

If implemented, the legislation would impose a 5% tax on money transfers made by non-US citizens, including H-1B and H-2A visa holders — many of whom are Indian nationals. The tax is intended to be collected by banks and money transfer companies and paid quarterly to the US government.

The GTRI report, released on Sunday, May 19, 2025, estimates that the proposed tax could cause a 10–15% drop in remittance inflows to India, which received $120 billion in remittances in 2023–24, with nearly 28% originating from the US. This would translate into an annual foreign currency loss of $12 to $18 billion for India.

“This reduction would reduce the supply of dollars in India’s foreign exchange market and may weaken the rupee by ₹1–1.5 per dollar,” the report warns, adding that the Reserve Bank of India (RBI) might be forced to intervene more frequently to stabilize the currency.

Impact on Indian Families

States such as Kerala, Uttar Pradesh, and Bihar, where millions of households rely on remittances for daily expenses like education, healthcare, and housing, could be severely affected. According to GTRI, a decline in remittance flows could lead to lower household spending, which may hurt India’s domestic consumption-driven economy, especially at a time when global inflation and macroeconomic challenges are already stressing family budgets.

Remittances are often the lifeline for middle- and lower-income households. The loss of even a small percentage of these funds could cause long-term structural damage to regional economies and social welfare.

“The tax risks disrupting critical financial support to developing countries. It marks a worrying shift in US policy that could hinder global economic stability,” said Ajay Srivastava, co-founder of GTRI.

Currency and Trade Implications

The report points out that the proposed tax could lead to a decline in dollar supply in India’s forex market, putting additional pressure on the Indian rupee, which has already been under strain due to geopolitical tensions, energy price volatility, and global interest rate fluctuations.

A weaker rupee means higher import costs, more expensive foreign education and travel, and greater pressure on the RBI’s foreign exchange reserves.

Furthermore, the reduced remittance volume would impact the balance of payments, a key indicator of a country's external economic health. The current account deficit (CAD) could widen, leading to further macroeconomic instability.

Broader Global Repercussions

India is not the only country likely to be hit. Mexico, El Salvador, and other remittance-dependent economies are also expected to suffer. Mexican President Claudia Sheinbaum has already labeled the plan “unacceptable”, warning that it amounts to double taxation, since most foreign workers already pay income taxes in the US.

“While the US may gain from a stronger dollar by limiting money outflows, this tax could damage global economic interconnectedness,” GTRI said, noting that remittances are a vital counterbalance to trade imbalances in developing nations.

The remittance tax marks a policy shift in how capital is treated in US legislation. While goods and people have historically been regulated, capital—especially remittances—has moved relatively freely. By penalizing cross-border money transfers, the US could be undermining global financial inclusion and international monetary equity.

India’s Diplomatic Response and Policy Dilemma

While the Indian government has not yet issued an official response, sources say that the issue could become a diplomatic flashpoint, especially given the size and contribution of the Indian diaspora in the US. India is likely to raise concerns bilaterally and possibly at international forums like the G20 and World Bank, where remittances are a recurring subject in discussions on inclusive economic growth.

GTRI on Apple Exit Speculation

In a separate but related development, GTRI has also criticized India’s policy concessions to Apple. The think tank pointed out that if Apple were to exit India—as hinted in speculative reports—India might not suffer significantly, since it earns less than $30 per iPhone assembled, most of which is offset through production-linked incentives (PLIs).

“In trying to appease Apple, the Indian government is slashing import duties on components like displays, chipsets, and batteries—undermining local manufacturers,” GTRI said.

This revelation comes amid a broader debate over whether global tech giants are strengthening or weakening India’s manufacturing base. GTRI argues that dependency on foreign brands without a corresponding build-up of domestic supply chains could jeopardize India’s long-term economic self-reliance goals under the Atmanirbhar Bharat initiative.

What Lies Ahead

The remittance tax proposal, although still in the early stages of legislative review, has already sparked strong backlash from economists, migration experts, and human rights advocates. Many argue that it penalizes some of the most economically vulnerable populations who migrate to support families back home.

For India, the stakes are high. The loss of billions in remittances would not only hit household consumption and state-level economic resilience, but could also challenge macroeconomic stability, especially in a year marked by election cycles and global uncertainty.

India may now need to consider a multi-pronged policy response that includes:

• Diplomatic engagement with US policymakers

• Incentives to retain remittance flows through formal channels

• Boosting alternative foreign exchange sources like services exports and tourism

• Strengthening domestic economic safety nets in remittance-dependent states

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