Business Week ran a story on the Indian Economy in its July 2nd edition “India’s Economy Hits the Wall”. It paints a grim picture of the Indian economy and its prospects. Though the article is certainly accurate, observers of and participants in the Indian economy should not lose sight of the fact that overall growth will likely continue at about 7 or 8%, down from 10% or higher.
The negative macro environment highlighted by Business Week may actually benefit outsourcing companies. In the last two months the Indian rupee has depreciated rapidly against US dollar and is now at 43 rupees to the US dollar, which directly benefits outsourcing companies operating from India (costs being in Indian rupees and revenues being in US dollars). This was a big worry for outsourcing industry in 2007 when the rupee topped out at INR 39 to USD level.
Furthermore, most major India-based outsourcing companies are insulated to some degree from the Indian economy. They have established a global delivery platform, meaning building operations centers in the US and elsewhere. For example, Wipro invested in several US delivery centers (see, e.g., Information Week article, April 2007). And finally, smart outsourcers have taken other steps to insulate their businesses, particularly keeping salary hikes under control by limiting annual salary hikes to an average of 10% despite high inflation and supplementing pay with incentives including professional development leadership training.
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