Posted by: Manjeet Krpalani on July 7, 2008
In the spring of 2007, when the Indian rupee was appreciating smartly against the US dollar - it had hit Rs. 39 to $1, and there was talk of it even getting to 38 - most Indians were feeling an unusual pride in the usually-maligned rupee. For the first time in many years, this poor man’s currency looked like it had a little value after all.
But one small group of Indians were feeling nothing but anxiety. They were the exporters, purveyors of textiles, cut diamonds, software services, brassware, etc. A minsucule group that contribute about $120 billion a year - but a powerful one, particularly the IT lobby. This group, hurting from the appreciating rupee, marched to New Delhi, shed tears before the finance minister, and begged him to do something, anything! to dampen the rise of the rupee. The IT industry, quiet but determined, pointed out: how could IT, India’s pride, take a hit? Whatever would foreign investors say if they saw their IT stocks and profits wilt because of currency appreciation? After all, thanks to IT, India had begun to draw foreign investment in the first place, they argued.
It worked. Over the next few months, the Reserve Bank of India, India’s central bank which comes under the purview of the Finance Ministry, began to intervene in the rupee’s rise, and brought its price down from Rs. 39 to the US dollar, to the current 43.
Unfortunately, the timing could not have been worse, coinciding as it did with higher prices of oil - $145 a barrel at latest count. A depreciating rupee does not buy too many of those barrels, and India is in a financial hole now because it imports 75% of its oil needs and is finding it difficult to support those prices as also the 60% domestic subsidies on oil products like diesel. Already fears of shortages are running high; some petrol pumps have put out signs which say, “No petrol.” Inflation is at 11.65% in India, interest rates are over 9%, and the poor are now having to choose between school fees for their children and food in the thali for the family.
The IT industry, meanwhile, is Marie Antoinette. They’re doing so well, their export model is competitive again, profits are looking good again. Sure, some are cutting down staff - even they are not so immune from a slowdown. But by and large, they are back to their old business - applications maintenance, mostly, for which they get paid in US dollars or Euros. The rupee is forgotten, for very little of the business of India’s top IT services players, comes from India. They’ve been so focused on the export market, they forgot about doing something for their own country - like creating national ID cards, pushing the state to spend more on IT so corruption can be stalled and public services like banking can easily reach the masses, education can leapfrog from blackboard to laptop…the list is endless.
Instead, the number one IT company in India today is IBM, which views India as a vital market, and has penetrated the country in a way its Indian rivals - who scoff at the low fees they get in India - have never been able to do.
As for those hundreds of millionaires and billionaires that the listing of these professionally founded and run IT companies has created? No replication of the Bill & Melinda Gates Foundation here. No great institutes built. No institutions built - no school of IT, no business school, no major innovation labs. Some insignificant spending of a bit of those billions somewhere - but where is it visible? Maybe to a few insiders in Bangalore - but otherwise, invisible.
Other Indians have, however, taken note of this lacuna. India’s IT industry, says one, ” is creating a gated community within India. They use their clout to influence national politics, and to keep their interests safe.” Like the rupee depreciation. He complains that though they have been awarded high civilian honours, they put little back into the community, indeed keep themselves insulated from it, in gated intellecual communities.