Technology companies in India are trying to make sense of the impact of the US deal to resolve its debt crisis since it involves a huge cut in spending.
The US House of Representative passed a plan that raises the debt ceiling from $14.3 trillion and implement spending cuts of $2.5 trillion. For the $60 billion Indian IT services industry, the US is the biggest market with almost 50-60 per cent of revenues coming from it.
On the one hand, say analysts, it might result in clients dividing large deals into smaller parts to get better pricing, on the other hand, it could result in a rise in technology innovations by companies that try to introduce more efficiency in their clients' businesses. Besides, the threat of a depreciating US dollar to the Indian rupee could impact the Indian IT services providers' bottom-lines.
“The spending cuts would mean that the US government becomes much more efficient, gives better services to citizens without the same expenses. So in the long-run, there is little choice but to use technology,” says Som Mittal, president Nasscom.
Ganesh Natarajan, vice chairman and CEO, Zensar Technologies echoes his views: "The compromise is certainly a positive move. But if the government is also cutting costs this might lead to higher taxes. Over the next six to 12 months US corporates might look at dividing some of the large deals into smaller sections.”
Steve Hodgkinson, research director IT-Asia Pacific, Ovum, opines the global impact of a worsening US economy will impact overall business confidence in the region, particularly for companies selling into the US market or selling to US companies with operations in Asia Pacific.
“On the flipside, necessity is the mother of invention, so we will see opportunities emerging for services and technology providers that underpin export opportunities for US companies and that assist US government agencies to increase operational productivity. This might also see rotation of vendors. So some big contract of services might be cut, which will create opportunities for players who can give better pricing and can handle tech innovatively,” adds Hodgkinson.
Research firm Forrester says it will lower its forecast for the 2011 US IT market growth to 6.5 per cent from seven per cent and to around 7 per cent in 2012. "I want to emphasise that we continue to see the tech market outperforming the economy in the US, and to a lesser degree globally. As long as the US stays out of recession, we expect US tech investment will continue to grow twice as fast as US growth measured in current dollars,” says Andrew Bartel, VP and principal analyst, Forrester Research.