The decline in the US dollars in the past few months, and increase in the cost of a barrel of crude oil to nearly $100 has given glimpses of the US dollar decline on it’s stronghold.
It is not just the Indian rupee that has gained in the recent past, but the currencies of many Asian countries including China, Indonesia, and Philippines. The exporters in India are struggling to keep up with the profit margins, the suffers are mostly the small scale exporters. The bigger IT companies are somehow keeping it up, and are trying to diversify their markets and also planning of making future deals in other currencies like Euro.
Oil is the key, with dollar declining the reserves of billions of dollars in the oil rich countries of the Gulf are feeling the heat, not just due to the desert temperature. Their billions of dollars reserves are losing their value. So they are in a way pushing towards neutral currency, you can say, Euro. The biggest fear could be Chinese converting their trillions of dollars reserve to Euro. That could propel the Euro to exchange rates as that of pound sterling. Good news for the ones waiting with forex reserves of Euro, here i’m talking about the retail investors. The ones would have gone to EU for an on-site trip, and have some Euros saved from their trip.
The rise in Rupee or decline of dollar is affecting Indian IT companies, which earlier had the edge over US Multinationals with cost effective solutions. Now, IBM and Accenture are giving stiff competition to the likes of Infy, Wipro, TCS and others. How are these tackling the dollar debacle?
Near-shore offices instead of on-site travel, more freshers, and hiring from relatively less explored or untouched regions like Czech, Bulgaria, Argentina and Mexico. The Indian IT companies stock prices are declining like never before, and the IT Mutual funds have -38% growth in the last one year.
The fall in dollar is affecting the lives of millions in a variety of ways, eroding stock prices, lower profits, depreciating forex reserves and in many uncomprehensible ways. The weaker-dollar has a few positives as well, for importers. Buying Bose QC3 at a cheaper price was possible due to a dollar at 39.8 rupees. My plans of buying a DSLR also seems viable. But the negative impact comes in the form of a lesser hike i get the next year as the business in dollars gets lesser rupees for my company. Effectively buying my QC3 would be at the same rate, isn’t it? But the psychological factor helps.
Another positive aspect of the stronger rupee is for someone planning to do masters in the US. Obviously their reserves in rupees would be worth more than it was a year ago. Hence the tuition fees and other expenses would cost cheaper for them. There is also a flip side to this, after they graduate, if they work in US, the spending capacity in rupees would not be the same if dollars were worth more for a rupee.
In the short term, though it has more negative impact on India, i’m sure Indian IT companies have gained enough expertise in the domain to take on the giant multinationals like Accenture, IBM and others not just in IT services at low-cost but also in consultancy to take advantage in the long term. The India story is still good, as they say. :)
