Category: IT Industry

Imagine the Indian rupee having the status of a global currency. This might seem more of a fantasy and less of reality. But this was the picture of the Rupee some 50 years ago. However, the two major financial crises in 1966 and 1991 led to the consequent devaluation of the rupee. In the present scenario, it is no secret that India is achieving robust growth with an average increase of about 9% in its GDP every year. This might lead to the belief that the Rupee must also have been making significant progress. However the reality is quite contrary. It’s astonishing to know that the reason behind this is the Indian government itself. Had the government not interfered, the rupee would have been soaring high as expected. What forced the government and the RBI to suppress the growth of the rupee? Let us see the reasons behind the government’s bizarre actions.

Since the last few years the government has been doing its part to keep the Indian rupee in a low profile. In plain words the Indian government has been preventing it from gaining strength against other currencies especially the U.S. dollar. This is done in order to protect the Indian exporters particularly the IT sector followed by the jewellery and the textile sectors. Since these sectors are the major players in our economy, the government and RBI are keen to control the growth of the Indian rupee. The role of the apex bank is significant in this regard. Stronger rupee will be a severe blow to all the exporting firms. And there is the example of how China spread its goods across the world through the cheap Renminbi.

Several counter arguments have been raised stating that “A strong rupee does not imply weak imports”. The best example to this statement is that of Japan and Germany. During the 70s and 80s, Japan made remarkable progress in its global exports trade while simultaneously Yen gained significantly against the Dollar. High production technology and good quality has been a characteristic of the Japanese goods. Even Germany has been the world’s largest exporter of hi- tech goods despite its strong currency. This feature is however absent in the Chinese goods. It’s disturbing to note that even Indian goods lack this feature. As the rupee gains, the IT sector will be affected to a drastic level as most of the outsourcing jobs by the U.S. are driven by the weak rupee. However, it’s inevitable that for the future growth of any sector, new technology and better quality is the key.

A strong rupee can actually be the solution to this problem when viewed from a different perspective. For one, it would bring down the cost of technology – mainly the capital equipment and raw materials which in turn can produce better exports. This would revolutionize the manufacturing sector in India. But some losses cannot be avoided i.e. those who fail to make a transition from mere cost-arbitrage to a competitiveness driven by technology and quality. However the major firms in the exporting sector will be able to make the transition. The strong belief for this comes from the fact that the people and companies from this country are involved in development of high technology all over the world. It is just an artificially cheap rupee that prevents them from doing the same in their homeland.

Of course, there are several additional benefits to reap from the strong rupee. It will reduce the inflation through cheaper imports of several commodities particularly oil. The Indian government will also be able to issue rupee denominated bonds to foreign investors for infrastructure projects which will in turn help the rupee to regain its lost glory. Half a century ago it was a key currency for trade, spreading from UAE in west to Hong Kong and Malaysia in the east. The rupee was quite strong then, 4.75 to the U.S. dollar compared to the high 40s now.

The government has announced a unique symbol for the rupee (read here). This might mark an end to the era where it tries to erode the strength of the rupee. “Strong symbol implies strong substance”. This should be the future of the Indian rupee.

– Radha Krotthapalli

Recent comments of president Obama regarding outsourcing saw shivers running through the spines of Indian IT industry, our flagship export to the rest of the world. Worried about the steep rise in unemployment in the US, president Obama told the Congress that he shall be putting sanctions on the companies that outsource jobs outside the boundary of the US. But what is to be seen is how harsh his sanctions would impact IT industry in India

See how money makes the world go round. The most vehement supporter of free trade, the US, marred by century’s worst financial crisis and high unemployment rates, is now resorting to such overtly protectionist measures. Our IT industry is reasonably cautious about it. It nevertheless has put up a brave face and says it’s optimistic about the future. The apex body for IT and ITeS industry – NASSCOM, that such measures in the bigger picture won’t affect India‟s $50 billion IT industry and it also criticized such moves saying that we should face this economic crisis by increasing global cooperation rather than such protectionist measures.

While industry leader INFOSYS argued that outsourcing has increased the efficiency and hence the competitiveness of US companies. It has helped them access the best resources of the world thereby encouraging innovation, which has again lead to job creation in US. Anyhow there is no denying in the fact that if any such restriction is implemented, it shall be met with strong criticism and shall be denting US‟ international image. Also there is fear that other countries may also follow suit.

If talking about its direct impact on India‟s outsourcing and IT firms, these changes wouldn’t be large enough to match the 20-30% benefits that they are getting now. Tax breaks won‟t be able to compete with this kind of deal. But it would also be accompanied with stricter restrictions on H1-B visas given to highly skilled manpower. And the number of our engineers going to US for short projects or permanently settling there would see a sharp decline. Although it’s not too big a case for concern.

In the overall scenario, these set of events won’t prove to be a big setback to our ever expanding IT industries. Our image of the world‟s back office is here to stay. IT shall continue to grow bigger and better…

– Shreyank Jamar