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On November 1,
2007, rupee value touched a 9 ½ year high against the US Dollar (US$1 = Rs.
39.22/24). The Indian rupee appreciated almost 12 percent against the US Dollar
between April and November 2007, with India's economy growing at a healthy rate
of 8.6 percent.
While it was anticipated that the consistent rise of the rupee against the
dollar would bring delight to all the sectors of the economy, but the actual
scenario was vastly different.
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The Information Technology (IT) and Business Process
Outsourcing (BPO) companies in India felt the pinch as 70 percent of the
payment by the clients was done in dollars resulting in losses for
companies in this sector. IT & BPO were sunshine sectors in India,
contributing some 5.2 percent to India's Gross Domestic Product (GDP)1,
and it was estimated that between 20 and 25 percent of India's GDP
expansion in the next three to four years would come from the IT
industry in India.2 But the rise in rupee value was increasingly proving
to be a disadvantage for this sector.
IT & BPO companies, irrespective of their size, saw erosion in their
profits. In relation to this PV Kannan, CEO of 24/7 Customer, an
outsourcing services firm with around 6,000 employees, said that the BPO
firms typically earned net margins of 14 percent to 15 percent, and
every 10 percent decline in the dollar's value ate up 6 percent to 7
percent of those margins3. In this circumstance, the cost of hiring and
retaining the talent pool had become the biggest challenge for the
sector.
Particularly, due to the fact that the year 2007 saw wage inflation in
India as high as 15 percent compared to 3 percent in the US. Sampath
Shetty, Vice President, TeamLease Services Pvt. Ltd4., said that, "The
margins in the IT sector already under pressure over last few quarters,
coupled with unprecedented appreciation of the rupee and the cost of HR
capital in the IT sector being the highest at about 40 per cent, has
adversely impacted hiring." 5
Analysts did not expect top companies in this sector such as, Infosys
Technologies Ltd. (Infosys), Wipro Technologies Ltd., Tata Consultancy
Services Pvt. Ltd., etc., to be affected in a significant way due to the
rupee rise.
In this connection NASSCOM6 president Kiran Karnik, said, "There will be
no impact of the rupee appreciation on the top lines of companies. As
far as profitability goes, the impact will be less on the bottom lines
of big (top-tier IT companies) companies and for small IT companies, the
impact will be big as they have little lever to safeguard their earnings
due to rupee appreciation through hedging, moving more work onsite."7
However, even in these companies, the trend of recruitment has gone down
and salary increments were also put on hold.
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1] According to NASSCOM's annual study on the
performance of the IT services and BPO sector during the year 2006-07.
2] "Research Shows Rising Rupee May Hurt Indian
Outsourcers," www.tmcnet.com, October 19, 2007.
3] "Will Jobs Move Back to Silicon Valley from India?
Don't hold your Breath…," www.knowledge.wharton.upenn.edu, October 18, 2007.
4] TeamLease Services Pvt. Ltd. is an Indian staffing
company providing temporary and permanent manpower solutions.
5] "Re Rise, Subprime Fiasco to Cut down Q4 Hirings:
Survey,"www.economictimes.indiatimes.com, October 9, 2007.
6] NASSCOM (acronym for National Association of
Software and Service Companies) is the premier trade body and the chamber of
commerce of the IT industry in India.
7] "BPOs to Bear Brunt of Re Appreciation,",
www.economictimes.indiatimes.com, October 3, 2007. |
