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IT will survive rupee appreciation

The strengthening rupee will impact the Indian IT sector but the latter will manage to remain competitive, feels Nandan Nilekani.

business Updated: Oct 15, 2007 00:59 IST
Arun Kumar

The strengthening rupee will impact the Indian IT sector but the latter will manage to remain competitive, feels Nandan Nilekani. In a interview with Arun Kumar on the sidelines of the HT Leadership Summit, the founder and co-chairman of Infosys Technologies also says the rise of Indian managers in the global market has helped position brand India in overseas countries. Excerpts:

How do you see the rupee’s growth against the dollar affecting the Indian IT sector?

I admit that for every one per cent rise of the rupee against the dollar, the operating margin of the Indian IT sector will be affected by 0.4 to0.5 per cent. The realty is that it is going to impact the bottomline. The issue before us is how to manage this change. I strongly believe that Indian IT companies have many levers to manage such changes, like improving utilisation, reducing sales and general expenses, moving more businesses offshore, etc. They will continue to compete in the global environment.

The US economy is the engine of the global economy. Going forward, do you thing the centre of gravity will change from the Pacific to the Atlantic or a new zone?

By far, the US economy is the largest in the world and will remain so for the medium term. However, some economies like China are growing fast. In absolute terms, the growth in the Chinese economy is more than that in the US economy. The economies of China or India, after achieving a certain minimum number and growing to four to five times that of the US economy, can then distribute the load of the US economy to some other economy.

We have some multi-billion dollar acquisitions in the old economy but in the IT sector, it is primarily in the sub-$100 million category, despite the fact that some leading IT companies have loads of cash in their balance sheets. Why are they not going in for mega acquisitions?

It is the nature of business and the business model. The emergence of software services companies is due to the new model. The old companies still have the business model that is not relevant in the current market environment. Therefore, you will continue to see deals with limited aspect such as acquiring customers, acquiring technologies or domain knowledge or similar to that.

The Indian economy is more or less integrated into the global market. Do you think this could affect growth in case of a global slowdown?

Over the last decade, the Indian economy has integrated into the global economy at a much larger scale, in terms of trade, inbound and outbound, capital flow on account of foreign direct investment or portfolio investment and integration of service sector, inflow of remittance and other invisibles. Having said that, a variety of structural changes have taken place during this period, creating a basic foundation for growth. Such as demographic distribution, high savings rates, efficient use of capital with the risk of flat world and outsourcing and other factors. All these have built in a minimum growth rate in the system. That will continue to benefit the system and with the exception of minor hiccups, the Indian economy is poised for a long-term growth story.

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