Rupee depreciation to impact Gujarat IT firms' domestic business

The impact on hardware prices could be nearly 10-15% in the short run

The sudden weakening of rupee against dollar to Rs 58 has caused worry lines for the Gujarat-based IT industry. While software exports may have been benefiting from rupee depreciation, the domestic industry is worried about significant rise in component costs for IT companies in the state.

According to industry players, the impact, especially on hardware prices could be as much as 10-15 per cent in the short run. "The rupee weakening has been more than 10 per cent. The hardware costs will go up to that extent or more. The rupee depreciation would especially hit the IT firms that are servicing the domestic market. And if the foreign exchange situation extends to a certain period, the impact could be higher," says Nikhil Jain, chief operating officer, Elitecore Technologies.

Combining both software exports and domestic turnover, the IT industry in Gujarat generates revenue worth close to Rs 3000 crore. Of these, the domestic share is about Rs 900-1000 crore while the rest is software exports.

"Several companies in Gujarat import components for products and services. The sudden depreciation has definitely caught us off-guard. We have to see how much will be the impact," says Jaimin Shah, past president of Gujarat Electronics and Software Industries Association (GESIA).

Jain is of the view that the companies only those IT firms that do a balancing act of exporting as well as servicing domestic will see the impact being evened out.

"Since rupee depreciation against dollar helps exporters, only those companies that serve both exports and domestic markets might be immune from the impact. The fear is, however, that investment in IT infrastructure among firms in Gujarat will slow down because of this," explains Jain.

Among other impact, the depreciation is likely to discourage companies from buying new hardware. "People will not buy new hardware for now," adds Jain.

Meanwhile, according to Niraj Gemawat, managing director of Gateway Technolabs, IT firms in Gujarat should increasingly look to hedge contracts to safeguard themselves from currency fluctuations. "Things will get costlier. However, we hope the rupee depreciation should correct itself in near future," adds Gemawat.