Article DetailsHow bad is US Slowdown-for IT India |
| Date Added: October 09, 2008 03:29:19 PM |
| Author: Jayan CM |
| Category: Business |
| Jayan CM Editor bizsaga.com US slowdown is always a bad news for the world, and India will also have to bear a part of that brunt. This is evident from the fact that Indian rupee has declined 6.2 percent in the month of September against the Dollar and this is the biggest monthly drop since November 1997. Indian currency has risen more than 14 percent against the US dollar in the past. An economy which grows over a period of time tends to slow down as a part of the normal economic cycle. The American recession was in waiting for quite sometime. The American GDP was already on decline for two or more consecutive quarters of a year. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years at the maximum if proper measures are in place to keep it from further escalating. The US economy accounts for 30 per cent of the world's GDP. The US economy has suffered 10 recessions since the end of World War II. To start with the Great Depression during 1930 to 1939, it was a decade of high unemployment, low profits, low prices of goods, and high poverty. But America has always come out strongly. What follows this recession is the panic when investors spends less fearing that stock values will fall, and it obviously falls on this negative sentiment. This also happened in India, when stock market crashed. What led to this crisis is because of home loan defaults in the US. The high risk debt offered to people with poor credit worthiness or unstable incomes. Major Banks have landed in trouble after people could not pay back loans. So it was arrogance and over confidence on the part of some investment bankers. The impact of an American recession on Indian IT industry - is quite on the cards. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years; almost 75 percent of its revenues come from the US. It is quite obvious that IT sector will be the worst hit. This development will force major IT companies to bring down their target on IT budgets. IT companies in India are already feeling the heat and have anticipated huge hole in their profit, some even losing their revenue with their client getting busted. To be candid US recession is likely to have an impact on the outsourcing industry, but it will happen slowly, maybe in six months or so. Under performing US companies like investment banks, law firms will affect the bottom line of the outsourcing industry. Small to medium size companies, which runs on a net margin of 7-8 per cent, will find it difficult to stay alive. Any recession leads to a decrease in demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Companies have slowed down its intake, and are in for some rude shock to new joinees by either terminating the joining date or postponing it by a couple of months. So the best option for aspirants is to stick on for a while and not to look for option even if you get an offer letter from potentially employer. How to keep the momentum going - Indian IT market will always have to feel the pinch if they are more US centric and fail to come out of this cocoon. The India IT management will need to focus and spend some time to develop markets in Middle-East-Asia and Europe or even local market. Business from this part of the world may offer possible short-term options to our export-dependent sectors. Diversification of trade in the Asian region or looking at domestic market will partly counter any drop in the US demand; In fact, many small and medium companies have already started developing trade ties with China and European countries to counter any loss. Another best option for smart companies is to find markets in India itself to enhance productivity, though the deal sizes will be small and companies will have to re-negotiate their pricing. India has a huge, small and medium enterprise base and it is the right time to hit the bull’s eye. It about those companies which are already addicted to American market and not willing to scale down will be in doldrums; even in that case we cannot blame them. On the contrary some experts believe that India may remain relatively less affected by adverse global events." There is no threat to the skilled people. According to NASSCOM India will have a shortage of about 5 million skilled people in IT/ITeS. So there are lots of opportunities. To end on a positive note, it is believed that the recession will not last long and it’s just a part and parcel of growing economy. |
