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back to article Indian IT exporters coin windfall profits as rupee plunges

India has in recent weeks descended into a financial crisis, but despite dire economic warnings, industry watchers believe that the period of instability could actually benefit the country’s IT services giants and their outsourcing customers. Wednesday saw the Indian rupee fall to another new low, dropping over two per cent to …

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forget about renegotiating

Now is the time to hang on to our jobs for dear life! The price of offshore outsourcing is going down. How attractive to our loyal employers! I wonder how long they'll be able to resist the temptation despite their great love and admiration for us. That's the worst possible trend for the UK IT worker. Come on Rupee - rise! And living standards in India - rise! We ALL need a fair deal and some job security.

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Re: forget about renegotiating

It is my contention that whenever the word "fair" appears, some economic contingencies have been misunderstood. In particular when the "fairness" is expected to spring from state economic intervention.

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Anonymous Coward

"In particular..."

"... when the 'fairness' is expected to spring from state economic intervention."

Or private enterprise.

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Re: "In particular..."

It is interesting that for senior, director, positions it is vital to pay vast sums of money to get the best talent, but below that level the cheapest option is always the best.

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The absolute rate is not so much a concern for the industry as the volatility. Such sudden fluctuations impact the planning process for companies and customers.

Right.

2012-03-22: Saving India from the Keynesians by Shanmuganathan "Shan" Nagasundaram

"At this point, readers could rightfully ask the question "How then did the same team engineer the reforms of 1990–2010?" The answer is fairly straightforward: all that we have managed is a transition from a nearly communist economy (defined as state ownership of production) to a nearly fascist economy (in which ownership of production is private, but the state plans and controls the means of production.) The above transition was intellectually consistent with the Keynesian beliefs of the reform team and hence was not difficult to implement. Even this limited movement in the direction of "free markets" has given the Indian economy tremendous rewards in terms of growth and poverty reduction.

... Given the challenges ahead in terms of disruptions in the global economy, the right thing for the government to do would be to free up capital by reducing their expenditure (leading to lower taxes and inflation) and dramatically decrease the involvement in economic activities/decision making by allowing competitive forces to decide market outcomes. ... While there would be impediments to implementation as cited above, the bigger stumbling block lies in the realization by the economic team as to why the above is the right thing to do. For a team that has paraded the NREGA as its flagship achievement, indulges in price controls as a way to manage inflation, has praised ministers for presenting socialistic budgets, the intellectual blind spot is the real hurdle. With the repeated hyperbole in the mainstream media of Indian Prime Minister Dr. Manmohan Singh being a "brilliant economist," and given that he has surrounded himself with advisers who are essentially welfare/Keynesian economists, salvation truly lies only within."

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The intresting Phrase here

"serious infrastructure bottlenecks," given the fact that India has suffered from the world's largest power blackout one wonders how much more expensive it is to run your data centers off generators?

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Flame

That's not the point...

Companies were originally set up to provide a service or a product.

With more than a handful of employees, all companies' admin depts become bureaucracies. And what kicks in then?

Yup, Pournelle's iron law of bureaucracy:-

Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people":

First, there will be those who are devoted to the goals of the organization. Examples are dedicated classroom teachers in an educational bureaucracy, many of the engineers and launch technicians and scientists at NASA, even some agricultural scientists and advisors in the former Soviet Union collective farming administration.

Secondly, there will be those dedicated to the organization itself. Examples are many of the administrators in the education system, many professors of education, many teachers union officials, much of the NASA headquarters staff, etc.

The Iron Law states that in every case the second group will gain and keep control of the organization. It will write the rules, and control promotions within the organization.

Many of, if not most of, the second group will be of the beancounting persuasion - long term to them is 9-12 months, and they know the price of everything but the value of nothing.

Just to save a few shekels most of the would sell their own grannies to the Taliban - and they wouldn't even be able to comprehend what they're doing or have done.

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Anonymous Coward

So ..

Not being an accountant, how does this actually affect the American outsourcers who have Indian subsidiaries but handle everything everywhere in dollars? (annually fixed constant currency)

Do the Indian's get paid in Dollars or Rupees? Will it now cost a Dollar based outsourcer (who charges their worldwide customers in constant currency dollars) more or less to use Indian techies?

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Re: So ..

Who gets the benefit or suffers the disadvantage of any currency movement depends on the terms of the contract. If the contract is priced in Rupees, then the American customer benefits because it now costs less in Dollars. If the contract is priced in Dollars, then the Indian supplier benefits because they now get more Rupees. They would be able to price future contracts for a lower number of Dollars than previously making them more competitive.

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Re: So ..

In many contracts where there is currency changes involved the party open to risk (dealing in the other's currency) will have some form of risk management in place, hedging is particularly en-vogue at the moment. In that case you run a transaction opposite to the risky one, offsetting the risk.

An easy example, I expect a payment in US$ in a month and I deal in rupees. I could just wait, but that gives me uncertainty. So, instead I go to the bank today and borrow US$. The amount I borrow will be, plus interest in one month the same as the amount I will receive in US$.

Today I convert those dollars into rupees, so I have dealt with exchange rate uncertainty. When I get paid in US$ I pay off the loan I took out in US$, so don't mess about then.

(that's an oversimplification, but sets out sort of how hedging works).

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Anonymous Coward

> They would be able to price future contracts for a lower number of Dollars than previously making them more competitive.

Correct. But it's also worth asking the question: more competitive than whom? India already receives the bulk of outsourcing. (The proportion of the world outsourcing market that has recently moved to China, say, that might swing back to India is relatively tiny.) And all Indian companies are benefitting equally, so there is no advantage to any particular one.

The worst possible thing to do for an Indian outsourcer is to renegotiate now. If they lower their rates they will soon find themselves losing money if the rupee rises even a little. And that would be bad for them and for their clients.

And "we" (the few remaining on-shore IT staff) will simply find even more sh*t to clear up as things will inevitably go (more) wrong.

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Are those who make the outsourcing decisions intelligent enough ...

to evaluate the quality of the work produced by the companies to which it's outsourced? It is doubtful if there is any country the public perception of which has been so negatively affected by outsourcing as is the public perception of India.

Helpdesk and customer support units based in India seem to be remarkably consistent in that they seem to be staffed by individuals whose command of European English is limited, whose willingness to listen is almost non-existent, whose responses are consistently off a script and whose ability to resolve the problem, whatever it may be, is minimal.

It seems most unlikely that the quality of work in other areas of work outsourced to India is significantly better.

India has problems, all right. Problems in terms of the quality of the workforce. Other nations won't have to reach a very high standard in order to pick up the work now being outsourced to India.

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