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Is India’s Position as BPO Capital of the World at Stake Due To Changing Rupee-Dollar Equation?

Indian BPO sector is abuzz with one question: how rupee-dollar equation is going to affect India’s position as BPO capital of the world in the long term. And how big scale the impact is going to be?

It is for sure: with global economic meltdown causing dollar take a nose dive, Indian outsourcing companies are going to face some hitches. While plummeting dollar value remains a risk to the entire global economy for a number of reasons, it becomes a threat to India’s sunshine industry. For industrially developed economies, outsourcing means an investment for strengthening their infrastructure and upgrading the operations. When other global players come into play and global equations starts changing its course, it is the countries with solid outsourcing background, which starts experiencing the hit.

This is exactly what happened with India: with the devaluation of dollar, world’s outsourcing capital has gone on the tenterhooks over recent past. Over 60 percent of the revenues of the Indian IT companies come from the USA. For the IT enabled BPO companies this dependency is as big as more than 80%. So it comes as no surprise when we find that dollar depreciation against the rupee accounted for Infosys’ $21.6 million during the first quarter (April-June) for fiscal year 2003-04. While for the IT giant Infosys, the jolt was as massive as this, it can be easily imagined, how risky it could be small or medium players that fall in the ‘hundred percent export oriented’ category.
The majority of these IT and BPO companies have little or no domestic market exposure and mainly cater to American clients and their revenues are calculated in terms of dollars.

Here are few lines from a study that measure up the situation more soundly. ”Indian software firms get 60 per cent of their revenues from the US and a one per cent appreciation of the rupee against the dollar can impact earnings before interest and tax margins by between 30 and 50 basis points. Irrespective of the fact whether the company is big or small, all of them have been hit. The margins may be impacted by as much as 4 per cent.”

Now, how Indian IT companies are braced for deal with this tricky situation or how they are trying to minimize the loss? The companies are trying to bridge the gap with increased efficiency of their employees, in terms of increased work output. In addition to that, the companies are working out new structures for managing foreign exchange exposure wisely. Instead of 40 hours a week, the standard norm for IT and IT enabled BPO sector is going to be 50 hours in a week. As a result, employees are to work 6 days a week, in stead of previous 5 days a week.

However, NASSCOM (National Association of Software & Services Companies) does not think, the an appreciating rupee against dollar will have any long term negative impact on India’s status as world’s major outsourcing destination. “The impact would be minuscule and to the tune of 2-3 percent; we do not think it will have an adverse impact on the competitiveness of Indian software firms,” maintained Kiran Karnik, the President of NASSCOM.

Niyamath Parveez

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Comment by Rajat Verma on October 7, 2009 at 12:43am
don't the contracts cover that.. at least the long term ones.... the fluctuation in the valuation of currency should be taken care of in the contracts..

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