Impact of weak Rupee on IT-BPO sector in India

Indian BPO sector has been facing turbulent times in the recent months because of the volatility of Indian rupee. There other factors as well like US subprime crisis and rising input costs which are forcing the BPO companies to change their business models. The Indian rupee has hit a record low this month, as low as 54.91 against the US dollar. This volatility in Indian rupee is seriously affecting IT-BPO sector like other sectors.

Rupee is becoming weaker by the day against US Dollar

The Indian rupee has seen huge swings in recent months because of the outflows of FII’s and economic turmoil in Europe. The weakening of Indian rupee has brought good news for exporters including the software exporters like TCS and Infosys. But it has added on to the woes of the IT-BPO industry. Though big companies might not be getting affected by this volatility since they engage in hedging, the companies getting affected the most would be the small companies. According to NASSCOM, a 10% movement in the currency will definitely add to the concern of the BPO companies irrespective of its size. NASSCOM says that this high level of volatility will adversely affect the planning process of the Indian IT-BPO industry which is valued at USD 100 billion.

Depreciation and Appreciation of rupee has its own advantages and disadvantages for the IT-BPO industry. The volatility in currency poses a major challenge to the BPO firms since for the offshore work they earn their revenues in dollars and the expenses have to be met in Indian rupees.

Depreciation of rupee has inadvertently helped the Indian IT industry to increase their revenue according to experts. The revenue of Indian IT companies is expected to increase since they earn their revenues in dollars. Though there will be an increase in revenue the inflationary condition will put the IT-BPO industry under tremendous cost pressure. The cost incurred on travel, power etc. is said to go up and the capital expenditure will also increase because of higher import costs.

The Indian BPO companies are gearing up to face this situation of volatility in their own ways. The BPO companies are engaging in hedging and others are entering into agreements with an auto escalation clause as even a 1 % rise in the Indian rupee results in a negative impact on BPO margins by 50 basis points to face this challenge. There are some companies like Spanco TeleSystems who have convinced their clients to bill in rupees instead of dollar and some others have linked pricing to the exchange rate fluctuations too.

Coming few days, it would be interesting to observe the new strategies BPO companies would put in place to overcome this rupee volatility issue.

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