Advertisment

Confusion, Not Despair

author-image
DQI Bureau
New Update

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.

Advertisment

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

Advertisment

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.

Advertisment