Resigning to another rise

The industry had resigned itself to yet another rise and the Reserve Bank of India (RBI) has kept up the practice. The debate on the focus — growth versus inflation targeting — has been vigorous. RBI has taken the call yet again to curb inflation.

The information technology (IT) industry looks to the signal that the interest policy gives to exchange management. The normal expectation is global funds would flow in on the basis of a rise in the interest rate. However, factors such as high inflation in India, a cautionary approach to emerging markets, reduced growth rate expectations, and governance issues are resulting in reduced fund flow. In the absence of flow of global funds, the rupee will not appreciate, and we would be importing inflation through the consumption of high-priced oil.

 

The slowdown in infrastructural investments is obviously of great concern to the IT industry. In 2008, the economic crisis resulted in a great push towards offshore work. The reduced budget of customers resulted in them shifting higher volume of work to India. We believe the same approach would be followed this time around, as clients attempt to get more value for their dollar. Here is where the reduced investment scenario in India hurts IT companies.

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S Mahalingam
CFO & executive director, Tata Consultancy Services