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US-Iraq war will hit Indian IT industry hard, fears Nasscom
Priya Ganapati in Mumbai |
February 11, 2003 17:42 IST
The appreciation in the value of the rupee as against the US dollar over the last six months has led to a depression in the Indian software industry.
Over the last two quarters, the rupee has shown a very strong performance against the dollar, which has led to the shaving of 2-4 per cent off the total growth rate of the Indian IT industry.
The IT software and services industry is expected to end fiscal 2002-03 with a growth of 28-30 per cent. Only if the rupee had not done so well, then that figure would have been a few notches higher, say the mandarins at the National Association of Software and Service Companies.
"The rupee in the past has always depreciated against the dollar. But now we are seeing a situation where the Indian currency is appreciating and the impact has on the growth to the extent of 2-4 per cent," says Kiran Karnik, president, Nasscom.
On February 5, the rupee hit a 14-month high of 47.75 to the dollar and has hovered around that mark since then. The strong performance of the rupee has been attributed to increasing dollar inflows to corporates and selling by exporters, and strong inflows from Non-Resident Indians.
Apart from the rupee, two other factors played spoilsport for the industry.
The first was the travel advisory issued by the United States government during the Indo-Pakistan border standoff that led to many clients either postponing their trip to India during the period.
The result of that was either delayed business or in some case cancellation of a few customer visits that could have possibly led to contracts.
"The advisory did create a few problems for the Indian IT industry. But we must say that it recovered remarkably and made up for the lost business in that particular quarter later," says Karnik.
The other factor was the war on Afghanistan that led to a few jitters in the industry.
"We were right next door to it so we were worried about the long-term impact of the war. However, a swift conclusion to it ensured that the Indian IT industry did not face much too many problems," says Karnik.
Nasscom has termed the Indian IT industry's growth as 'outstanding' and has said that it has proved its resilience.
Between April and December 2002, the IT services industry grew 20 per cent to touch Rs 25,800 crore ($5.4 billion), while the IT enabled services segment grew at 61 per cent to reach Rs 8,200 crore ($1.8 billion).
However, the outlook for the Indian IT industry remains uneasy.
For the next fiscal, the industry is keeping its finger crossed at the possibility of a US war with Iraq. The war -- if it happens and it increasingly looks like it might -- will lead to a massive drop in the growth rate of the Indian IT industry.
While Nasscom did not comment on how exactly the war would impact the growth rate numbers, it did say that the Indian industry as a whole is likely to suffer.
"The war will have an impact on the entire Indian economy. When the price of oil shoots up to $30 a barrel, it is unlikely that any sector of the economy will remain unscathed. The war will also mean that clients cannot travel to India and that will affect the industry," says Karnik.
However, he remains optimistic that the economic boom which is likely to follow any war will help the industry bounce back.
"We want to make sure that we are ready for the positive economic cycle that will follow the war with Iraq," says Karnik.
The industry is also witnessing a slowdown in the growth of IT services. Though the massive increase in the ITES and BPO segment has compensated for that in 2002-03, whether India can sustain this trend in the next fiscal remains to be seen.
"We are optimistic about the growth of the ITES segment and we believe that it will continue to be a big driver for the Indian IT industry," says Karnik.