Indian IT exporters coin windfall profits as rupee plunges
Now's the time to renegotiate outsourcing and offshoring deals
India has in recent weeks descended into a financial crisis, but despite dire economic warnings, industry watchers believe that the period of instability could actually benefit the country’s IT services giants and their outsourcing customers.
Wednesday saw the Indian rupee fall to another new low, dropping over two per cent to Rs64.55 against the US dollar, in what has been a grim month for India's currency and also for the nation's financial markets.
Since January the rupee has plunged more than 10 per cent against the US dollar and the signs are it could drop further, with investors losing confidence in the government and Reserve Bank of India.
Forrester vice president and India country manager Manish Bahl wrote in a blog post earlier this month that “political gridlock, serious infrastructure bottlenecks, and decreased investor confidence” are all slowing economic growth, with the falling rupee leading “directly to increases in the costs of doing business”.
Bahl told The Reg that this “tough phase” is likely to last until after the next parliamentary elections, scheduled for May or June 2014.
With a protracted period of economic uncertainty and currency volatility, what of India’s vast IT services industry and a customer base heavily concentrated in the UK and US?
Well, such is the gravity of the current crisis that industry body the National Association of Software and Services Companies (Nasscom) has been forced to release a statement, sent to El Reg:
The rupee dipping to an unprecedented low has led to investors and non-resident Indians questioning whether the rupee will further weaken or strengthen. The absolute rate is not so much a concern for the industry as the volatility. Such sudden fluctuations impact the planning process for companies and customers. We hope to see the rupee stabilise for better planning and decision making for the IT – BPM industry.
Unsurprisingly, the group, which boldly predicted that India’s IT industry would be worth as much as $300bn by 2020 – is more confident of the long-term future. It said that “the fundamentals of businesses are still strong” and that they would pass through the current volatility to continued growth.
Forrester’s Bahl was similarly upbeat.
“While the short-term outlook appears challenging, we maintain a positive long-term outlook on India due to a number of factors, including low per capita income, demographic advantage, and urbanisation, among others,” he told The Reg.
“In my opinion, it doesn't make much sense for end-clients to start moving their business from India to some other country with a short-sighted vision.”
In fact, India’s IT firms could even benefit in the short-term with the weak rupee exchange rate helping to boost the value of any income earned abroad, he said.
“This puts Indian IT services majors in a strategic position to offer lower rates to win more business and compete harder against IBM and other global majors,” argued Bahl.
“Clients should grab this opportunity to better negotiate on pricing with outsourcing players and put a model in place to revisit pricing after every two months as the Indian rupee is expected to slide further.”