US fiscal cliff won't impact Indian IT sector: Nasscom

Despite fears the fiscal cliff in the US would lead to that country cutting budgets next year, the National Association of Software and Services Companies (Nasscom) feels it is unlikely this would have an adverse impact on the $100-billion Indian information technology (IT) sector.

A fiscal cliff refers to the simultaneous expiry of tax breaks and the introduction of spending cuts.

Nasscom, which recently scaled down its estimate of growth in India’s software services for FY13 from 11-14 per cent to 9-11 per cent, said with the election in the US over, “the worst may be behind us”.

“Our business depends on our customers. This time, the focus of the Obama administration would be more on economic growth. The priority would be on creating jobs. To achieve that, they need to support business,” said Nasscom president Som Mittal. He added the trend in the quarter ended September showed businesses would see growth.

Recently, international trade expert Jagdish Bhagwati had expressed concern on US President Barack Obama’s second term. He alleged Obama had stifled outsourcing and termed him the worst US president.

Analysts feel as the fiscal scenario in the US turns grim, there would be some impact on the Indian outsourcing industry. “There could be automatic spending cuts and tax increases. To gauge the impact, we need to see who the key clients of Indian IT companies are. If corporate tax rates increase, it wouldn’t augur well for the Indian IT industry. There may be some impact, but it needs to be seen what the extent would be,” said Harit Shah, senior research analyst, Nirmal Bang Institutional Equities.

When asked if Nasscom would want to move to quarterly estimates, as business visibility was becoming difficult, Mittal said, “We might come out with a six-month guidance. But as of now, we do not see a reason to do so. We will come out with our annual guidance in April next year.”

He added though the industry’s pricing environment had not improved, it had managed to remain profitable. “Over the last four to five years, billing rates haven’t gone up drastically; neither have they come down. But wage inflation has been there and companies have expanded. This shows Indian companies have sharpened their business focus, innovated, added employees and have still managed to maintain margins,” he said.