So, after a long time, we have had another almost FUD year. Fear ruled the
collective psyche after grand old financial institutions began to tumble one
after another. In India, terrorist attacks targeting the nerve centers of
Indias economy, the political capital, the technology capital, and the
financial capital, only added to that fear. Uncertainty today is the
pre-dominant feeling in the Indian IT industry, more than despair, which rules
the mind in times of recession. Well, doubt, thankfully has still not entered
the Indian mindthough I dont know whether to be happy about that. Most Indians
somehow believe that the slowdown trends will be reversed, sooner than latter.
Many CIOs that I have spoken to say that there has been no cut in the planned IT
budget, though they have been asked to go slow on new projects. The focus, in
Indian enterprises, is more on managing operating cost (actually, working
capital) and cash flows. And the reason is not difficult to understandthe
liquidity problem in India is for real.
In India, more than doubt, there is confusion, though I am not going to
create another acronym replacing D with C, for the sense of decency, if not for
anything else.
Is confusion better than despair? I am not going to take sides in that
debate, but here is an attempt to simplify the reasons behind that confusion.
Shyamanuja Das |
For one, Indian IT industry is a peculiar mix of a huge export industry and a
smaller but promising domestic industry. The export industry makes a huge chunk
of its revenues in selling IT services to American firms, though many of them
now have clients in other geographies. So, if America is going through
recession, this industry would be directly and immediately impacted, though some
optimists argue that pressure on margins actually makes companies look at more
offshoring. Much of Indian ITs fear about slowdown and recession is a direct
result of this segment getting really affected.
In the domestic market, there is a liquidity problem among the banks and
hence among most enterprises. That has put some pressure on cash flows. However,
many CIOs say that their companies have not revised long-term growth targets so
they have the task of managing IT in such a way that the growth remains smooth,
if not fast, yet they make tactical cost savings in IT and other areas through
IT. It is a tough expectation but that is the challenge for most CIOs in large
Indian enterprises, especially in the new segments: balancing long-term growth
and short-term cash flows.
But the most confusing paradox is something else: the exchange rate.
Throughout the issue, we have told you that there is a slowdownor at least some
slowing down, if that makes it a little lighter. We hear of huge job loss
figures; frantic cost-cuttings and so on. We also agree that it has affected the
exports companies more than the domestic-focused companies. Yet, if you look at
say Infosys half-yearly growth between April-September 2008, it is 30%, not
remotely slow, even by Indian standards. If you compare with last years growth,
which was supposed to be a much better year, it becomes even more confusing.
Last year, it grew 19%. That is why I call it confusion. Dataquest, in all its
calculations, including in DQ Top 20, takes rupee as the primary currency. Most
of these companies earn most of their revenue in dollars (spend most of that in
rupees). So, if you take the growth in the same period in dollar terms, it would
be much lower. That is because the rupee has depreciated significantly against
the dollar between the two periods. What is worse, in the last financial year,
it had appreciated significantly. So, in FY 08 rupee growth was lower than the
dollar growth. This year, it is just the reverse.
So, was last year a better year or is this a better year? The exchange rates
do not allow us to provide a clear answer to that question. That, I think, is
the biggest confusion.