Andhra more proactive on infrastructure front: Karnik

Nasscom against sudden volatility in exchange rates as it could hit exports

Nasscom, the apex association of software services companies, today said that Andhra Pradesh was far more proactive than Karnataka in addressing issues related to infrastructure development.

Nasscom also said that the strengthening rupee had raised worries but announced it would stick to its earlier export guidance of $16 billion worth of software and services export for the current year.

Addressing the media on the sidelines of a Nasscom event, the association's president, Kiran Karnik today indicated that physical infrastructure issues plaguing top tier software destinations in India could going forward drastically affect investments in the country and there was a good enough chance that China or Russia could benefit.

On a sombre note, Karnik pointed out: "Infrastructure is a big issue, though talent is there, most visibly in Bangalore. This is a problem of success and a good problem to have but nevertheless this is a problem."

The threat, according to the Nasscom honcho, was not one of Bangalore losing out investment to another centre in India like Hyderabad or Pune, but Bangalore losing investment to a Shanghai.

"The Andhra Pradesh government has acted faster than Karnataka in terms of the international airport and as well as sorting out infrastructural issues. From what I understand from the media, there are still land acquisition issues that are affecting the Bangalore airport project."

"While we can create one million square feet of built up space in six months, it takes us much longer to build roads and bridges. The progress is there but is not fast enough. Infrastructure delivery is slow in India," he said.

According to Karnik, the rising rupee was a matter of concern as it could impact software exports. "We think that if the rupee appreciates steadily we have no issues. But if there is sudden appreciation we have a problem."

Karnik indicated that Nasscom would be comfortable with a four per cent annual appreciation in the strength of the rupee to the dollar but was against sudden volatility in the exchange rates.

He said that the big IT services players in India always went in for covers to protect themselves against such volatility, but it would be the small and medium sized IT businesses that would face the brunt of the impact of the strengthening rupee.

"We are okay if the rupee appreciates four per cent on an annualised basis but if there is a 10 per cent appreciation then that is definitely not welcome."

A rising Indian rupee is all set to impact the earnings of Indian software companies this quarter. The Indian rupee had gained about four per cent against the dollar in the last two months and more than two per cent of the gain has come in the last week.

The thumb rule here being that a one per cent increase in the strength of the rupee against the dollar has a 50 basis point impact on the operating margins of software companies.

On the issue of cost competitiveness Karnik said that bandwidth costs, an aggregation of international and domestic, were expected to come down between 20 per cent and 25 per cent next year.