Indian outsourcers hit by currency boom

The appreciation of the Indian rupee against the US dollar is affecting the margins of Indian outsourcers, the president of a trade association has said.

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The appreciation of the Indian rupee against the US dollar is affecting the margins of Indian outsourcers, the president of a trade association has said.

Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), claimed it is already a difficult time for Indian outsourcers because they are struggling with rising staff salaries.

The rise of the rupee against the dollar has Indian outsourcing companies worried, as two-thirds of their business comes from the US The rupee has appreciated against the dollar by about 8% to 9% in the last three months. The rising currency has pushed down exporters' rupee revenues, while their costs go up locally.

NASSCOM is asking the Indian government to restore some of the export incentives that were earlier provided to Indian outsourcers, in order to help firms cope with the currency issue. But the government may not want to extend incentives to the outsourcing industry, because it is one of the more successful sectors.

Export revenue of a large number of Indian outsourcing companies was brought under the tax net in February after India's finance minister P. Chidambaram imposed a minimum alternative tax (MAT) on income that was covered under tax breaks.

A large number of the operations of Indian outsourcing companies were set up under an export-promotion plan called the Software Technology Parks of India (STPI), which entitled them to tax breaks. But the STPI plan ends next year.

Companies seeking tax benefits now have to move their operations to special economic zones, something that is not feasible for outsourcing firms, which have operations in multiple locations close to where staff are available.

NASSCOM wants the STPI plan extended, and the MAT rolled back in the wake of the rupee appreciation, Karnik said. India's minister for commerce and industry, Kamal Nath, has promised a package for exporters, in the wake of the appreciating rupee, but did not outline specifics.

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