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S&P's downgrading of the US rating from AAA to AA+ with a negative outlook will have some bearing on the IT industry, but many industry experts are not in a position to clearly quantify the impact that it will have.
Mr S. Gopalakrishnan, Chief Executive Officer and Managing Director, Infosys, was cautious. “It will take time for us to understand what the implications are. If there is a recession, it is possible it may have an impact.”
He said that as the last recession was still in the minds of the people, the response will be better this time around. When asked about the fears of a double dip recession, he said: “It is possible. The expectation is that it won't be as bad as the last time.”
In a note explaining the rationale for the lowering of the rating, S&P officials wrote, “We lowered our long-term rating on the US because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.”
Commenting on the S&P decision, Mr Amneet Singh, Vice-President-Global Sourcing, Everest Group, said: “This is more of a sentiment thing. The cost of US borrowing will be going up. But I don't think there is a direct bearing on the Indian IT industry. The government spending on IT can get impacted. That's the only aspect that I can see influencing Indian IT industry.” According to itdashboard.gov, a Web site of the US Government, for 2011, the US government plans to spend $24.9 billion on upgrades and new systems and $54.4 billion on maintenance. As discretionary spending gets hurt in a volatile scenario, the upgrades budget may get hit.
But there is no reason to worry, said Mr Kumar Parakala, Chief Operating Officer of Advisory, KPMG . “It is not going to be of immediate concern. It may impact the capacity to borrow as far as US government is concerned. As long as Indian IT companies innovate and help clients to address challenges, it will not be bad.”
Mr Krishnakumar Natarajan, MD and CEO, MindTree, said: “Bonds will become more expensive and this in turn will impact the interest structure in the US.”
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