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The recent appreciation of rupees against the dollar has created a lot of panic in the Indian exporters of textiles and other manufactured goods, besides services. Software services have, particularly, seen their competitiveness suffer. The whole concepts of outsourcing in India are developed because of the cost benefits that foreign companies get in comparison to other countries in the world. The same competitive advantage no longer going to sustain the development of software services industries in the wake of the continued appreciation of rupees against the dollar which make exports costly and thus, companies are looking to other low cost countries. The Indian rupees have appreciated by nearly 10% since late 2006 and the main reason for this appreciation is the flood of foreign-exchange inflow, especially US dollar. In some ways, the present strength of the currency, which is now hovering just above the symbolic RS 40:US$1 mark, is an enviable problem. It suggests that the country’s attractiveness to foreign investors is increasing and signals optimism about the Indian economy more generally. The rupees appreciation has benefited the economy by making imports cheaper which is not a mean feat but on the other hand it has made the exports costlier. RBI has taken many initiative to curb this sudden appreciation of rupees but it does not seems to be a long term solution as the influx of foreign investment in the country could further appreciate the rupees in near future and thus could bring more problem for the exporters and hence, there need a long term solution for this impending problem.

Most of the India’s growth is a result of lower cost services in comparison to other nations. But this is not going to be a sustainable proposition and in long term it is no longer remain a competitive advantage for the country. Cost competency can easily be replicated. The development of many south Asian countries and other Latin American countries could easily snatch the share of software services market from the country. Today most of these countries are fast evolving as the next low cost providers and more and more multi national companies are packing their bags and heading towards these low cost service provider countries. The share of India in the low cost service industry is fast eroding and thus, we just can not sustain on cost competency alone. What needs to be done than? The solution is to differentiate India in ways other then the cost competency as well as finding ways to improve productivity. We need to start innovating things rather then replicating ideas. Japan survived its worst currency appreciation in the year 1990 by improving its productivity and introducing product innovations. This is not going to be an easy task as I believe, we are not ready to bring in sudden increase in productivity or create innovations. We have always been harping on the improvement of basic infrastructure and improvement in our education system but nothing concrete had been done so far. Our education system does not encourage innovation and the spirit of entrepreneurship is still missing in our culture. We are good at replicating ideas and reverse engineering but are yet to be taken seriously as innovators. The present education system in the country is encouraging lack of creativity among the students. Our engineering colleges and institutes focus on imparting fantastic technical skills but lack on providing the entrepreneurial skills. Most of Indian business school focus on imparting the purely management techniques rather then business school in west which focus on imparting leadership and entrepreneurships. Colleges and university across the country still practices the old form of education method which is based on theoretical rather than practical knowledge. We are a country of youngster, but so are many other. We have the best technical and management colleges and so are many other countries have. We have the advantage of a nation who can speak good English, but this can be easily replicated by many other countries. Than, what is the differentiating factor which is going to decide the future of the country and this deciding factor is how many innovators we will be able to produce. What we needed is an education system which provides more emphasis on practical aspects of teaching and encourages innovation. We need to encourage the zeal of entrepreneurship. Indian IT industry could emerge from this sudden problem by just concentrating on innovative business strategy and good processes as it cannot be easily copied by others and hence buyers would like to stick with them. Apart from this, IT sector need to press the expand button and look for other geographical destinations. They should expand geographically to areas like Asia-Pacific region, Europe and other emerging market like Brazil, Russia and china thus making a global footprint. This will help in reducing US dollar depreciating effect on revenues as the revenues would now comprise from stronger global currencies. They should also expand their offshore and onsite employee’s strength as that could multiply their IT production. IT industry will have to introduce stringent qualitative processes and best CRM practices as this will increase client satisfaction and thus they will not mind coming back with more businesses and referrals. Cost competency alone, is not going to sustain the information technology industry but in long run good process oriented IT companies will survive.

About Author:

Deepak Verma is currently in Welingkar Institute of Management, Mumbai PGDBM (06-08).He has done mathematics honours from Ranchi University and thereafter, PGD-GMT from National Institute of Fashion Technology in the year 2003-04. He has more than three year experience in Garment and textile industry in operations as well as in the field of Marketing.

Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer.