Bangalore: India’s IT industry expressed serious concern on 5 June over the impact of the rupee’s surge on export-dependent software exporters which are already struggling with high costs.
Any hope for the industry at this point in time lies in the US economy performing better than expected and the US tweaking interest rates to prop up the dollar. This was stated by Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom).
“We have had an 8-9% increase in the rupee in last 3-4 months,” Karnik, whose organization represents the IT industry, told reporters in Bangalore.
“This is a serious industry iconcern.” US accounts for two-thirds of Indian software sales and any rise in rupee trims profit margins of companies like TCS and Infosys which are at the vanguard of $48 bn (Rs 1,92,000 crore) industry. Nasscom estimated India’s software exports at $31bn in year ended March. Net foreign exchange earnings made up 51% sales at TCS, 56% Infosys and 35% at Wipro.
IT companies, while billing in dollars, are not import-intensive, unlike jewellery makers who buy raw material such as gems and uncut diamonds from abroad to polish and fashion into ornaments.
Karnik explains, “All our expenditure is in rupees so we take a huge hit.”India’s IT companies are already reeling under wages that are rising an average 15% a year in the face of a shortage of skilled engineers, while competition is increasing from emerging rivals in countries such as China.
Wages account for half the costs of IT companies, but there are warnings that more rises will blunt India’s competitive edge. “We have been so far able to manage them,” Karnik said. “But if wage costs increase and on top of that there is dollar depreciation, we are going to have a problem.”
The advance of the rupee to what have been the highest over the decade, make the currency one of the biggest gainers this year and propelling India to a trillion dollar economy, has not been foreeseen by either economists or exporters who do their billing in dollars.
The rise has been fuelled by inflows from investors eager to pump money into an economy that expanded a record 9.4 in the last financial year. FDI nearly tripled in the year to March to $16 bn from $5.5 bn a year earlier.
“Rupee appreciation is sharp and here to stay,” investment bank Credit Suisse said in a report and impact is material for many and can no longer be ignored as cyclical.”
The report said it could appreciate “by a further 1-2% in following months.” RBI has eased off from selling rupees as it wrestles inflation. According to Karnik, letting rupee rise has made imports less expensive, cushioning impact of strong fuel prices for India, which relies heavily on imported oil priced in dollars. Also, rupee has risen too high, too fast and there is bound to be a correction.”