Impact of rupee appreciation on the Indian it industry

Abstract

India in one of the leading exporters of IT services and as most of its export contracts are in USD terms, the impact of the sudden rupee appreciation was really significant in many companies. Revenue and Price were the two factors which would have changed for IT companies due to rupee strengthening. Price effect is defined as the change in the price in rupee terms for the service provided and Volume effect is defined as the change in volume of business that the company is serving. As the exchange rate has changed, the price and volume effect has shown changes for many companies and these were used for the study. A mathematical model was developed using the basic formulation that Revenue = Price * Volume and was used to find the significance of certain macroeconomic factors, which serves as the proxy for the above mentioned factors, on the revenue of the company(Refer appendix). The model was developed using multiple regression and is of the form Y=ß1x1+ß2x2+ ß3 . where Y= Revenue Change X1, X2 = Macroeconomic variables representing price and volume effect In order to substantiate the results obtained from secondary data, primary research was done and insights were drawn from the interviews taken. TCS, Mind tree and Sasken were few companies which contributed to the primary research and also gave a clearer understanding of the measures taken by the companies to overcome this impact. With the help of the primary and secondary data that we had gathered, we had analysed the effects of rupee appreciation on Indian IT industry and have drawn a comparison between large, medium and small scale IT industry. We have also analysed the most preferred measures taken by the companies to overcome this effect.