Gone are the days to be happy that the Indian Rupee (INR) is gaining space over the U.S Dollar (USD). The initial frenzy and buzz over this remarkable achievement dampened as quickly as it sparked. The Ravenous Rupee is not only feasting on the now feeble and frail looking USD but also is eating into the Indian IT industry that has so proudly boasted of its strength and might in the recent years. Reports say that the INR has been on the downside for more than a decade rising sharply from 25 Rupees for a Dollar to about 48 Rupees for a Dollar in 2002. That’s almost about a 100% rise over the decade. When we are talking about these figures in the context of currency appreciation of a country, that’s a huge deal. This phenomenon is hurting the SMEs (Small & Medium Scaled Industries) the more than anybody else. Lion’s Share of business for SMEs is from their US clients and so they are directly impacted by this dipping conversion.

Well for that matter it’s not just the SMEs but even the bigger players like Infosys, Wipro, and Satyam all have reported dips in their profit margins. There is no question about the fact that the impact is paramount. For every 1% appreciation there will be a 40-45 basis points impact on the net margins. This is because the INR’s stellar show against the USD also had ramifications into the European market. Since the start of Fiscal year 07 the rupee has moved from 87 INR to 82 INR against the GBP and from 59 INR to 55 INR against the Euro.

If this trend continues we may soon have to loose a lot of business to countries like China, Philippines who are considered as potential outsource geographies in the West. The onus is completely in the Indian Government to tackle this issue to come up with plans to keep encouraging the IT market that has been a splendid performer contributing to its economy.