The Hindu Business Line : IT sector reads rupee story ‘cautiously’

Bangalore, June 9 The Indian rupee last week came close to touching the 43-level against the dollar. But, the Indian information technology industry is not celebrating, but taking a “cautious approach”.

“This fluctuation is only a swing. We are not betting on it. The industry is taking the re-appreciating rupee cautiously and not celebrating,” said Mr Shanmugam Nagarajan, co-founder and Chief People Officer, 24/7 Customer, a BPO (business process outsourcing company).

“We have planned to target the rupee level at 33-35 a dollar in the long run,” he told Business Line on the sidelines of a two-day Nasscom BPO Strategy Summit 2008.

As a short term measure, companies are hedging at current rates. It would be a loss for companies that hedged earlier, but will get adjusted with hedging being done now, Mr Nagarajan said. According to Mr Mahesh Muzumdar, Senior Vice President and Country Head (BPO), Fidelity Business Services India, “We have to get used to a more expensive rupee, which will keep fluctuating now and then.”

Competition, growth

The Indian economy is getting more competitive; getting integrated into the global system and growing at a higher rate. Indian rupee will become a stronger currency, and “we will continue to see higher appreciation over a longer term”, he said.

Nasscom president, Mr Som Mittal, said the industry is concerned, and would like to have a stable currency. A stable currency will enable companies adopt the right price strategy and not worry about macro-economic factors. “But given the fact that India is part of the global economy, everything impacts us,” he said.

Given the present higher oil price and inflation, none in the industry know where the currency is heading. The earlier feeling among industry officials was that the rupee will depreciate further. But, it is the reverse now. “We cannot predict the rupee-dollar rates,” he said.

At rupee level 42 to a dollar, a few companies would have gained. But many earlier hedged at a much lower level, and they may not see the full advantage coming in, Mr Mittal said.

More efficiencies

You readjust to things that are slow. But, in the last one year there was a 12 per cent appreciation in the rupee, forcing companies to rethink, and bringing more operating efficiencies.

Despite the fluctuation, the fundamental value that the Indian IT industry provides does not change. Currency is one movement, and India will remain a low cost economy. Ten years ago companies came for cost advantage. Now, in addition to cost advantage, it is access to resources; reduced time-to-market and business transformation processes that make India an attractive IT destination, Mr Mittal said.