The falling rupee is detrimental to the growth of the economy and regulators should step in to control it, said Mr V. Balakrishnan, Senior Vice-President, member of the board and Chief Financial Officer, Infosys Ltd.
“While rupee depreciation is good for exports, it is not good for the economy. India already has high inflation and regulators should step in and contain the volatility. Otherwise, it will hurt growth, which is already slowing down,” he told Business Line .
His concerns were shared by others in the IT industry. “In the short term, this makes sense for us because we will have a higher profitability. However, things like travel, power, and general capex will go up. In the future, wage pressures may also go up,” pointed out Mr Sujit Sircar, Chief Financial Officer, iGATE Corporation.
Mr Sanjeev Hota, Associate Vice-President, Institutional Equities, Sharekhan, said, “Last quarter, the rupee was around 47.5 and this quarter, it is up by over 7 per cent. Every one per cent depreciation in the rupee leads to a 35-45 basis points impact on margins.” However, he said, it will be bad in the long term. “IT companies get around 40 per cent from on-site, and this may lead to a wage increase. In the long run, nobody wants the rupee to stay here because the fiscal deficit will go for a toss.”
While nobody knows how long this situation could continue, Mr Rostow Ravanan, Chief Financial Officer, MindTree, said this may not continue for long. “It is difficult to predict, but our experience is that the rupee does not sustain a one-way move for very long.” As an example, he pointed out that the rupee touched 52 in 2009, but quickly rose to 44. He said for MindTree, since half of its receivables was hedged, it would not have a major impact.