Indian IT firms urged to tackle rising rupee

Indian IT firms that weathered the rupee's surge against the dollar in the fiscal second quarter are being told to tackle it in the long-term as foreign funds flood the local market.

The rupee's 12 percent appreciation against the greenback since January is a "major concern" for the industry, said Jainder Singh, the top civil servant in the department of information technology.

The appreciation is affecting the competitive edge of software exporters and back-office firms that service American clients, Singh said on Monday at the opening of an industry conference in Bangalore.

IT firms should diversify their market base to other areas such as Europe and Japan, and reduce their reliance on the United States, which absorbs two-thirds of India's software exports, he said.

That is a long-term solution, easier said than done, for an industry that earned 31.4 billion dollars from exports in the year to March, 33 percent up from the previous year.

Software and related service exports are set to reach 460 billion by 2010, accounting for five percent of economic output and 20 percent of overall exports, Singh said.

For software firms, the rupee's appreciation reduces the local-currency equivalent of every dollar earned by an export-dependent industry that bills almost all its expenses in the local currency.

"At the end of the day, the US is the IT industry's biggest market and you can't change that," said Harit Shah, industry analyst at Angel Broking in Mumbai.

Software makers have been hedging more of their dollar earnings against a rising local currency in the forward and futures markets, helping them weather the impact of a rupee surge that was not predicted by exporters or economists.

They have also signed up more clients and expanded business in the US and elsewhere.

Such moves helped Tata Consultancy, India's biggest software services exporter, boost net profit by 23 percent to 12.51 billion rupees ($318 million) in the quarter ended September 30.

Infosys, the number two, lifted net profit by 18.4 percent to 11 billion rupees. Wipro, the third-largest, posted net profit growth of 18 percent to 8.237 billion rupees ($208.4 million).

Moving work

Those firms also benefited as US companies moved work such as IT systems management and software development jobs to India to tap its vast pool of English-speaking, computer-savvy graduates at lower pay than in the US.

That advantage is being quickly eroded by the rapid appreciation of the rupee, led by a flood of overseas funds into an economy growing nine percent a year.

"The rupee is going to appreciate more as the economy expands - we know that," said Kiran Karnik, president of the National Association of Software and Service Companies, which represents the IT industry.

"We don't expect the government to intervene because exchange rates depend on factors such as US interest rates, oil prices, that are beyond its control," he said. "But the IT industry's problem is that the rupee has risen too much too fast."

AFP

(China Daily 10/31/2007 page16)