Clients should look at leveraging the depreciation of the Rupee

During the past year, the Indian Rupee (INR) has been steadily depreciating against the U.S. dollar (USD) due to slower overall economic growth, high inflation rates, and unprecedented and rampant corruption in India. This situation was further worsened by 6.5% depreciation in the INR during the quarter ended June 2013 as the weaker currency keeps pushing up costs of key imports like oil, exacerbating the already high current-account deficit of 5% of GDP. The INR is currently hovering around 60 for a dollar and is expected to stay around this level for the next quarter or so.

 

Figure 1 The INR has been steadily depreciating against the USD over the past six months

Source: Yahoo Finance

 

So, what does this mean for clients of Indian IT services suppliers?

■   Leverage this depreciation in the rupee to negotiate better pricing. The fall of the INR often has short-term positive impacts on the revenues of the Indian outsourcing community as the weaker exchange rates help boost income earned in USD. This puts them in a position where they can offer lower rates to stave off competition from global majors like IBM and Accenture and from emerging outsourcing locations like Philippines which is also going through a similar weakening of its currency.

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