What would be the impact of a strong Rupee on the Indian Economy?

1. BUSINESS OPPORTUNITIES FOR
THE IT INDUSTRY IN INDIA
WITH A STRONG RUPEE
PRESENTATION FOR THE COURSE: TALENT ACQUISITION
COURSE INSTRUCTOR: PROF. HARSHALI
GROUP MEMBERS: NIRAV DESAI, SHWETHA BHATT, SUDHA EDUPUGANTI,
KRITIKA BANSAL
MBA-IT 2014-16
SICSR

2. Opportunities pre appreciation
 Indian software companies such as Infosys, Tata Consultancy Services (TCS)
and Wipro get most of their business from the developed economies.
 Since IT companies earn most of their revenues in dollars , given that their
big market is the US, and since their expenditures are mostly in rupees,
given that they do their delivery mostly out of India, profit margins will widen
in line with the rupee depreciation.
 Different companies had different margin sensitivity. For Infosys, every 1%
change in rupee value leads to an increase or decrease in EBIT margins by
50 basis points. For TCS, it is 30 bps.

3. Opportunities pre appreciation
 IT companies are in the practice of hedging their currency risks. As a result,
the forex loss on account of hedging would be taking some of sheen out of
the reported results
 Analysts were of the opinion that companies like HCL Technologies and
Infosys that hedge for a shorter duration and also have lesser hedged
amount will see substantial gains.
 A falling rupee increases the margins of export-oriented sectors such as
ours, and thus contributes favorably to the business.

4. References
 http://timesofindia.indiatimes.com/tech/tech-news/How-falling-rupee-will-help-
Indian-IT-companies-TCS-Infosys-and-Wipro/articleshow/20491120.cms
 http://www.business-standard.com/article/technology/rupee-depreciation-
positive-for-it-sector-111092300070_1.html
 http://www.informationweek.in/informationweek/news-analysis/
271797/impact-rupee-depreciation-enterprise-vendors

5. Exchange Rate vs Price of Imported Oil:
Direct Correlation here
USD-INR Exchange Rate

6. Statistical Analysis: Exchange Rate vs Inflation
USD-INR Exchange Rate

7. Statistical Analysis: Inflation vs IIP and GDP
Reference: Accenture india 2014: annual review of key
economic trends
India GDP Annual Growth Rate
Percent change to Gross Domestic Product

8. Information from: Fossil Fuel Subsidies in India: The
Case for Rationalizing Petroleum Prices by Anmol
Soni (TERI)
USD-INR Exchange Rate

9. Information from: Fossil Fuel Subsidies in India: The
Case for Rationalizing Petroleum Prices by Anmol
Soni (TERI)
USD-INR Exchange Rate

10. Information from: Fossil Fuel Subsidies in India: The
Case for Rationalizing Petroleum Prices by Anmol
Soni (TERI)

11. Summary of the Analysis:
 Stronger Rupee would mean lower cost of imported oil, gas and coal.
 Lower cost of imported coal would imply cheaper electricity.
 No direct benefit since State Electricity Boards are subsidized by the
Government.
 Lower cost of oil would mean less money spent by government on oil
subsidies.
 Freed up cash could be used for other projects by the government.
 Government could also lower the taxes if spending on subsidies is less.

12. After Appreciation…
 Government can drop taxes on import taxes,vat taxes etc.
 Government will reduce subsidies on crude oil which takes 35% of the
budget.
 Now, government can finance in other sectors.
 It is more likely that government will invest in IT sector for
enhancement of economy.

13. Government frees up cash…
Projects which can be introduced are:-
smart grid, biometrics based database of
citizens
for identifying criminals, etc. and also
charge lower taxes.
Domestic market will increase.
More investment for innovation in Research
and Development.
More job opportunities.

14. Entering New Markets
 As current scenario states domestic producers focussing on domestic
markets who see lower costs and more disposable incomes of the
prospective market
 Here are some new entries
 Telecom and Communication
 Education
 Healthcare
 Agriculture
 Manufacturing
 Public Security

15. Telecom and Communication
Telecom and 3G: The roll out of 3G of mobile
phones in India should be seen as a positive
development for the IT companies. In the long
run it is going to provide basic communication
facilities in the rural areas of the country. In
India it is going to provide basic
communication and broadband access to
the rural youth. Moreover Growth in Telecom
industry also demands greater IT application
in terms of VAS (Value Added Services),
Telecom Billing Solutions, IVRS etc.

16. Telecom and Communication(2)
 IT companies should also focus more on the domestic markets with
major projects lining up inside the country as well for instance
the Railways ERP project, the BSNL systems integration, networking
projects, IT work from ministry of finance and private telecom
companies, banks and others.

17. CONCLUSION
Thus we observe that the Indian IT industry has been facing some
challenges but if effective steps are taken then it will surely help it to
remain competitive in the future as well.